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Petitioners owned a number of commercial and residential
rental properties. Among these was a dwelling located at 418
Morningside Heights, Lynchburg, Virginia, in which petitioners
owned a 50-percent interest during the years at issue.
Petitioners reported their income and expenses, including
depreciation, from rental real estate on Schedule E. Three
properties, including the Morningside Heights dwelling, were
listed on their 1999 income tax return. Five properties,
including the Morningside Heights dwelling, were listed on their
2000 return.
Mrs. Viar has a brother who was 70 years old at the time of
trial. During 1999 and 2000, petitioners allowed Mrs. Viar’s
brother and his wife to live in the Morningside Heights dwelling
rent free because they were “unable to afford a place of their
own.” However, it was agreed that Mrs. Viar’s brother would make
improvements to the dwelling in exchange for living there. The
dwelling was old and in need of repairs. Mrs. Viar’s brother did
make a number of repairs and improvements to the dwelling;
however, petitioners did not maintain any records of these
expenditures.
During 1999 and 2000, Mr. Viar had telephone service with
several different carriers. He maintained two local telephone
numbers, one personal and one business line, with Verizon as the
telephone provider. His long distance service was with AT&T. He
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