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returns as head of household for 1987 through 1991. Respondent
also conceded that petitioner is entitled to dependency
exemptions for David in 1987 through 1989, Erin in 1987 through
1991, Robert in 1987 and 1991, and Amy in 1991.
After petitioner and Mrs. Corrigan’s divorce became final
during 1977, they continued to cohabit. Petitioner left his
position in San Francisco during 1978 and accepted a new position
as a stockbroker with Smith Barney Harris Upham (Smith Barney) in
southern California. Petitioner flew to the Smith Barney office
in San Francisco for business on Fridays, and spent most weekends
with his family at his Walnut Creek home that he continued to
maintain as his principal residence.
Petitioner and Mrs. Corrigan purchased new residences and
left the Walnut Creek home during 1986. The Walnut Creek home
was sold for $254,000 during 1987. On the 1987 Federal income
tax return, petitioner reported the Walnut Creek home sale and
attempted to defer the gain by attaching a Form 2119, Sale or
Exchange of Principal Residence. The Form 2119 reflected that
gain was realized from the Walnut Creek home sale and that the
recognition of the gain was to be deferred pursuant to former
section 1034.
During 1986, petitioner and Mrs. Corrigan jointly purchased
real property in Chino, California, for $495,000. Mrs. Corrigan
operated the property as a ranch, and her initials were used to
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