Phyllis J. Merendino - Page 2

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          petitioner’s taxable year 1996.  The issue for decision is                  
          whether respondent abused his discretion in denying petitioner              
          such relief.  We hold that he did not.                                      
                                  FINDINGS OF FACT                                    
               Some of the facts have been stipulated and are so found.               
          Petitioner resided in Aventura, Florida, when she filed the                 
          petition.  At all material times, petitioner was, and remains,              
          married to Dr. John Merendino (Dr. Merendino).                              
          Dr. Merendino’s Sale of Business                                            
               In the early 1990s, Dr. Merendino established a business               
          directed toward providing rehabilitation to elderly disabled                
          people in nursing homes.  In 1995, while Dr. Merendino was in               
          negotiations to sell his business, the U.S. Department of Justice           
          (“Justice Department”) was investigating Medicare payments made             
          to Dr. Merendino.  The Justice Department learned of the pending            
          sale and mandated that the sales proceeds be placed in escrow               
          pending the final resolution of the matter.  On June 12, 1997,              
          the Justice Department endorsed a settlement agreement                      
          authorizing disbursement of the funds, all of which were applied            
          to taxes or to settle the civil Medicare case.  Ultimately, Dr.             
          Merendino did not receive any significant portion of the sale               
          proceeds in cash because the proceeds were held in escrow.                  
          Petitioner’s Relationship With Dr. Merendino                                
               Petitioner and Dr. Merendino (the Merendinos) have been                

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