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Winston was $1,200,000. Adjusted basis reported on the return,
as a result of a claim of $33,360 in depreciation, was
$1,166,640, resulting in a reported gain of $83,360 on the sale
of the vessel. Accepting petitioner’s claimed depreciation,
respondent nonetheless determined that petitioner’s adjusted
basis in the vessel at the time of sale was $639,566, or $527,074
less than claimed by petitioner, resulting in a determination of
unreported gain in that amount.
Sir Winston II
On December 5, 1994, petitioner entered into a fixed-price
contract with Marine Builders, Inc., to build a yacht to his
specifications for $1,099,173. Petitioner made cash payments
totaling $39,000 toward the construction of the yacht.
Petitioner also made direct payments to vendors totaling $33,330
for improvements to the yacht during its construction. The yacht
was issued a certificate of inspection by the U.S. Coast Guard
and assigned identification No. D1037815. The yacht was
delivered complete and ready to carry passengers for hire on
January 11, 1996. Petitioner also named this vessel the Sir
Winston (Sir Winston II).
During the 1-year period after petitioner took delivery of
the Sir Winston II (January 11, 1996 to January 11, 1997),
petitioner had two checking accounts and a brokerage account on
which he could draw checks. During this period, the checks drawn
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