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Unless otherwise indicated, section references are to the
Internal Revenue Code as amended. Rule references are to the Tax
Court Rules of Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
A. Petitioner
Petitioner was a resident of California when the petition
was filed. Petitioner graduated from the University of Southern
California in 1963 with a degree in psychology.
Petitioner married William D. Lusk (Lusk) in 1966. In 1979,
they were divorced, and petitioner married James Merriam. Also
in 1979, petitioner received her home in Newport Beach,
California, as part of the marital settlement agreement with
Lusk. In 1980, petitioner sold her Newport Beach home for $1.4
million and received net proceeds of $876,936.
In 1981, petitioner and James Merriam paid $1,005,000 to buy
a 7,000-square-foot residence in Tiburon, California (Tiburon
residence). Petitioner paid a deposit of $201,000 and earnest
money of $350,026.28, and she and James Merriam borrowed $550,000
to buy that residence.1 James Merriam signed a quitclaim deed on
March 12, 1981, in which he relinquished any interest that he
might have had in the Tiburon residence.
1 The parties do not explain why payments for the Tiburon
residence do not equal its cost.
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