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personal items, including jewelry for Ms. Allen and expenses for
his 25 Ferrari automobiles.
Unlike most of the unreported items involving gain from real
estate transactions that we find were due to fraud, the 1985
foreclosure sale of the Citrus County Property was not a typical
sale of real estate. Respondent originally determined that
petitioner realized $49,907 as cancellation of indebtedness
income with respect to the Citrus County Property, in 1987.
Respondent first raised the issue of gain from the foreclosure
sale as a new matter in his amendment to answer. Respondent has
not proven that the portion of the underpayment from the 1985
foreclosure sale of the Citrus County Property was attributable
to petitioner’s fraud. The addition to tax under section
6653(b)(2) shall not apply to that portion of the underpayment
attributable to the gain realized from the foreclosure sale in
1985. Respondent has proven to our satisfaction that the
remaining amount of the underpayment for 1985 is attributable to
fraud. We hold that the addition to tax under section 6653(b)(2)
applies to that amount of the underpayment.
III. Statute of Limitations for Assessment
Generally, the amount of any tax must be assessed within 3
years after the return required to be filed by the taxpayer was
filed (whether such return was filed on or after the date
prescribed therefor). Sec. 6501(a). However, in the case of a
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