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On June 30, 2005, petitioners both signed an employment
agreement with RFI to work as the Rivercliff property’s
caretakers, in which their duties included supervising the
completion of the Rivercliff property development, maintaining
the new home for corporate guests, operating the farm, and caring
for their employer’s dogs and horses. The dogs and horses had
been transferred to RFI by the Talmages by bill of sale. For
their services, petitioner and Annette C. Talmage were paid
annual salaries of $42,000 and $12,000, respectively, and were
granted full use of the Rivercliff property and permitted to
reside in the property’s newly completed home.
On July 1, 2005, RFI contracted with SSI to complete the
development of the Rivercliff property development. SSI was paid
a total of approximately $12,500,000 to develop the Rivercliff
property from 1998 through January 31, 2006.
Petitioners filed their petition on July 12, 2005.
On March 3, 2006, petitioners jointly filed their Form 1040
for 2005, in which they reported $2,960,851 in capital gains from
the sale of the Rivercliff property to RFI. On November 16,
2006, petitioners filed Form 1040X, Amended U.S. Individual
Income Tax Return, in which they reduced the capital gain
recognized on the sale of the Rivercliff property to $2,322,720.
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