-3-
1. Whether petitioners underreported their income. We hold
they did in the amounts set forth herein.
2. Whether petitioners may deduct the disputed expenses.
We hold they may not.
FINDINGS OF FACT
A. Preface
Some facts were stipulated or contained in the exhibits
submitted therewith. We find the facts accordingly. Petitioners
were husband and wife from December 31, 1997, through the end of
the subject years, and they filed joint Federal income tax
returns for those years. When their petition was filed, they
resided in a 3-bedroom house (residence) in Laguna Beach,
California. Petitioners purchased the residence for $563,000,
each of them paying half of the downpayment, and the interior of
the residence measured approximately 2,200 square feet. That
square footage does not include a 2-car garage that measured
approximately 400 square feet.3 At the time of trial,
petitioners were divorced, and petitioner Cathy Michelsen LeBloch
(Michelsen) lived in or around Brisbane, Australia.
With respect to their household bills and other finances,
petitioners had an arrangement that they pay equally all common
expenses (e.g., mortgage, property taxes, utilities) and that the
3 The record does not establish whether the garage was
attached to the residence.
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