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to lot 12, or (c) live on lot 12;19 (2) petitioners paid all the
expenses relating to lot 12, including all real property taxes;
and (3) sometime after June 14, 2000, and before September 15,
2004, petitioners forgave the second loan with respect to lot 12.
Petitioners timely filed Form 1040, U.S. Individual Income
Tax Return, for each of their taxable years 1999 and 2000, which
their return preparer prepared. Prior to filing their 1999
return, petitioners did not consult a professional with respect
to the tax treatment of the December 2, 1999 transaction. Nor
did they consult a professional with respect to the tax treatment
of the June 14, 2000 transaction before they filed their 2000
return. Petitioners did not report the December 2, 1999 transac-
tion in their 1999 return. Nor did they report the June 14, 2000
transaction in their 2000 return.
Respondent issued to petitioners a notice of deficiency
(notice) with respect to their taxable years 1999 and 2000. In
that notice, respondent determined, inter alia, that the December
2, 1999 transaction and the June 14, 2000 transaction constitute
sales by petitioners of lots 5 and 12, respectively. Conse-
quently, respondent determined in the notice to increase peti-
tioners’ taxable income for each of their taxable years 1999 and
19As discussed above, at the time petitioners’ subdivision
plat was recorded in the land records of Anne Arundel County, lot
12 was unimproved. Although not altogether clear from the
record, it appears that lot 12 remained unimproved at all rele-
vant times.
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Last modified: November 10, 2007