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on those accounts that could have been for capital improvements
to the Sir Winston did not exceed $79,347. During this period,
petitioner also had two credit cards through which he made
expenditures totaling $54,589.
Petitioner sold the Sir Winston II to Dream Boat, Inc., for
$2 million on April 7, 1997. Petitioner advised his return
preparer, and reported on his 1997 return, that his basis in the
Sir Winston II was $1,789,322. Adjusted basis reported on the
return, as a result of a claim of $41,700 in depreciation, was
$1,747,622, resulting in a reported gain of $252,378 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 $1,132,503, or
$615,119 less than claimed by petitioner, resulting in a
determination of unreported gain in that amount.
Later-Built Yachts
Petitioner had four more yachts constructed by Marine
Builders, Inc., in addition to the Wrecking Krew and Sir Winston
II at issue in this case. Those later-built yachts were
constructed pursuant to “cost-plus” contracts, whereas the
Wrecking Krew and Sir Winston II were constructed pursuant to
fixed-price contracts. Under the “cost-plus” contracts with
Marine Builders, Inc., petitioner supplied a greater portion of
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