Dori R. Merriam, Transferee - Page 3

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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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