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Background
The parties have submitted the instant case fully
stipulated, without trial, pursuant to Rule 122. The parties’
stipulations of fact are incorporated herein by reference and are
found as facts in the instant case.
Petitioners are husband and wife. At the time of filing
their petition, petitioners resided in Apple Valley, California.
During the years in issue, petitioners owned two commercial
real estate properties in Apple Valley, California. One property
was located at 22040 Bear Valley Road (Bear Valley Road
property), and the other was located at 13685/13663 John Glenn
Road (John Glenn Road property). Collectively, the Bear Valley
Road property and the John Glenn Road property are referred to as
the rental properties. Petitioners also owned all of the stock
of two S corporations—-Bear Valley Fabricators & Steel Supply,
Inc. (steel company), and J&T’s Branding Company, Inc.
(restaurant).
During 1999 and 2000, petitioners leased the Bear Valley
Road property to the steel company and leased the John Glenn Road
property to the restaurant.
The steel company agreed to pay rent of $120,000 per year to
petitioners for the Bear Valley Road property. The steel company
paid the rent, which, after taxes, depreciation, and bank
charges, resulted in net rental income to petitioners for the
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Last modified: May 25, 2011