- 34 -
his acquisition of the Sir Winston. While we find respondent’s
effort to classify the credit card expenditures less persuasive,
this is no help to petitioner. Even if all credit card
expenditures during the period ($29,917) are treated as having
been for capital improvements (a highly unrealistic assumption in
petitioner’s favor), this would still leave a substantial amount
of claimed basis in the Sir Winston unaccounted for. That is, if
the $29,917 in petitioner’s credit card expenditures is added to
the $195,799 in checks that could have been for capital
improvements, the $225,716 total still falls substantially short
of accounting for the $527,074 in reported basis that petitioner
has not been able to substantiate. In sum, even under
assumptions that are extremely favorable to petitioner, the
possible capital improvement expenditures traceable through
petitioner’s checking and credit card accounts cannot explain
almost $300,000 in claimed basis. This leaves only cash
transactions to account for this amount, a premise we do not
believe. Consequently, we conclude that respondent has shown by
clear and convincing evidence that petitioner had an underpayment
for 1996, attributable to a failure to report a substantial
amount of gain on the sale of the Sir Winston.22
22 In reaching our conclusion that respondent has clearly
and convincingly shown that petitioner overstated his basis in
the Sir Winston by a substantial amount, we are mindful of the
fact that petitioner took possession of the vessel before the
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