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property. The ultimate source of the $600,000 spent on the
residence, however, is not established in the record. The
residence was completed sometime in 1996. Shortly after
completion, petitioners moved into the residence.
On April 22, 1996, when the contractor was no longer viewed
as a threat, for a stated price of $500,000, petitioners
exercised the option to repurchase the property and the completed
residence. Petitioners, however, paid no money to the Trust at
the closing of this repurchase, nor in later years through the
time of trial.
Prior to transferring the property back to petitioners, the
Trust did not attempt to list the property for sale with a
realtor or otherwise attempt to market or to sell the property.
From 1996 to the time of trial, petitioners have lived in
the residence on the property.
From 1992 to 1996, petitioners employed a certified public
accountant to prepare petitioners’ Federal income tax returns and
to give petitioners tax advice.
On Schedule D, Capital Gains and Losses, attached to their
1995 joint Federal income tax return, petitioners reported a
capital loss of $598,059 relating to the purported 1995 sale of
the property by petitioners to the Trust, $3,000 of which was
applied to offset petitioners’ ordinary income and $4,033 of
which was applied to offset petitioners’ capital gain for 1995,
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Last modified: May 25, 2011