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Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
The issues for decision are whether petitioner may deduct as
mortgage interest and real property taxes amounts petitioner paid
under a real property lease-option agreement and whether
petitioner is liable for additions to tax under sections
6651(a)(1) and 6654(a).
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
At the time the petition was filed, petitioner resided in
Highland, California.
Prior to 2000, petitioner was employed by Union Pacific
Railroad.
In February of 1995, petitioner moved to a house in
Highland, California (the property), renting the property under a
written rental agreement from Robert Peterson (Peterson) for $850
per month. Petitioner’s first check to Peterson, written on
February 14, 1995, was for $2,100 and included rent for the first
and last unspecified month of the rental period and a $400
security deposit.
In mid-August of 1996, petitioner and Peterson modified
their rental agreement with respect to the property, converting
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