                         T.C. Memo. 2005-236



                       UNITED STATES TAX COURT



              NHUSS TRUST, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos.    9938-04, 9939-04,      Filed October 11, 2005.
                   10070-04, 10071-04.



     Anthony V. Diosdi, for petitioners.

     John W. Strate and Thomas D. Greenaway, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     SWIFT, Judge:   Respondent determined deficiencies and

penalties in petitioners’ Federal income tax as follows:




     1
        Cases of the following petitioners are consolidated
herewith: In God and Trust, a.k.a. In God We Trust, docket No.
9939-04; RJ Pendergraft Trust, Joyce Pendergraft, Trustee, docket
No. 10070-04; Riley and Joyce Pendergraft, docket No. 10071-04.
                               - 2 -
     NHUSS Trust:
                    Year   Deficiency    Penalty
                    1999   $358,038      $71,608
                    2000    329,456       65,891

     In God and Trust, a.k.a. In God We Trust (In God We Trust):
                   Year Deficiency    Penalty
                   1999    $58,072    $11,614
                   2000     66,074     13,215

     RJ Pendergraft Trust, Joyce Pendergraft, Trustee:
                   Year Deficiency    Penalty
                   1999 $ 95,958      $19,192
                   2000    438,772     87,754

     Riley and Joyce Pendergraft:
                   Year Deficiency       Penalty
                   1999 $416,081         $83,216
                   2000    445,987        89,197


     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.   All references to petitioners are to petitioners

Riley and Joyce Pendergraft, and all references to petitioner in

the singular are to Riley Pendergraft.

     After concessions by all parties (particularly a concession

collapsing the income and expenses of the above three trusts for

each year into petitioners’ income and expenses) and settlements

entered into by all parties (particularly settlements relating to

various business and personal deductions), the only remaining

issues for decision are:   (1) The amount of petitioners’ gain on

the sale of their residence; (2) the fair market value of a van

on the date the van was donated to charity; and (3) petitioners’

liability for the negligence penalty under section 6662(a) in the
                                - 3 -
total amounts of $83,216 and $89,197 for 1999 and 2000,

respectively, with respect to the tax adjustments relating to the

three trusts, the gain on the sale of petitioners’ residence, and

the donation of the van.


                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

     At the time the petition was filed, petitioners resided in

Gilroy, California.


Petitioners’ Residence

     In 1972, petitioners purchased for $45,000 a residence

located in San Jose, California.    In 2000, petitioners sold the

residence for $790,000.

     Set forth in the schedule below is a list of various

categories of improvements that petitioners claim they made on

their residence prior to its sale in 2000, the total improvement

costs petitioners claim they incurred in each category, and the

improvement costs relating to each category that respondent has

allowed.


                                                Costs
                                    Petitioners     Respondent
     Category of Improvement           Claim        Has Allowed
     Residence                       $ 28,000        $28,000
     Swimming pool                     38,515          6,245
     Second story addition             60,000         16,665
     Interior remodeling              114,500          1,022
     Exterior                          43,191          3,527
     Alarm                              1,864            825
                 Total               $286,070        $56,284
                               - 4 -
     The above improvement costs claimed by petitioners are

reflected either in various building permits obtained by

petitioners (Appendix A), in other contemporaneous records

maintained by petitioners (Appendix B), or in petitioners’

testimony at trial (Appendix C).2   The $56,284 in improvement

costs that respondent has allowed are based on the costs that are

reflected in the building permits (Appendix A) and on some but

not all of the costs reflected in the contemporaneous records

(Appendix B).   Also, a few additional costs that respondent has

allowed are reflected in Appendix D.   Respondent has disallowed

all of the costs reflected in Appendix C.

     Further, in connection with the sale of their residence,

petitioners incurred closing costs of $61,864.

     In summary, petitioners and respondent calculate

petitioners’ cost basis in the residence as follows:


                                       Calculation of
                                  Cost Basis in Residence
                                 Petitioners    Respondent
         Purchase price           $ 45,000       $ 45,000
         Improvements              286,070         56,284
         Closing costs              61,864         61,864
                   Total          $392,934       $162,968




     2
        For purposes of the above schedule, where the various
sources of evidence in the case reflect different amounts for the
same improvement, the schedule reflects the higher amounts.
                               - 5 -
Donation of Van

     In October of 1996, petitioners purchased a 1996 Ford E150

conversion van.   On October 30, 2000, petitioners donated the van

to the Cancer Fund.   At the time of the donation, the van had

been used in petitioners’ furniture business and had

approximately 220,000 miles on it,3 and the van had, among other

things, a cracked windshield and a broken fender.

     At the time of the donation, the Kelley Bluebook indicated

generally a wholesale value of $14,750 and a retail value of

$20,425 for a van of the same year, make, and model.

     On November 10, 2000, Mr. Monte Sobrero appraised the van at

$19,750.

     The record does not reflect who hired Mr. Sobrero, how much

Mr. Sobrero was paid, or who paid Mr. Sobrero for his appraisal.

The record is also unclear as to whether the van was still in

petitioners’ possession at the time of its appraisal by

Mr. Sobrero.

     Mr. Sobrero’s stated appraisal qualifications include 40

years as a craftsman in metal finishing and paint restoration, 30

years as a licensed automotive dealer in California, 15 years as

owner-operator of an automotive shop, 10 years as owner-manager



     3
        Petitioner testified that the van was driven between
55,000 and 60,000 miles a year in petitioners’ furniture
business. On their 2000 joint Federal income tax return,
petitioners indicated that in 2000 petitioners drove the van
72,000 miles.
                               - 6 -
of an automotive leasing and rental business, and certification

in the International Automotive Appraisers Association.

     Mr. Sobrero’s appraisal of petitioners’ van consisted of a

visual inspection.   Mr. Sobrero, however, did not take into

account in his appraisal the mileage of the van.

     On December 16, 2000, 6 weeks after receiving the donated

van from petitioners, the van was sold at auction by the Vehicle

Donation Processing Center, Inc., for $6,900.


Negligence Penalty and Petitioners’ Three Trusts

     During 1999 and 2000, petitioners were engaged in the

wholesale furniture business in Nevada and northern California.

For more than a decade before 1997, petitioners operated their

furniture business as a corporation called NHUSS, Inc.     In 1997,

petitioners dissolved NHUSS, Inc., and began operating their

furniture business through a trust called the NHUSS Trust.

     In a brochure distributed by National Trust Service (NTS),

founded and promoted by one Roy Fritz, NTS claimed that taxpayers

could “with [their] custom designed NTS Trust Document * * *

regain [their] inalienable rights and freedoms” by attending an

NTS workshop where they would learn to create their own trusts

that purportedly would protect taxpayers’ assets while lowering

or eliminating their tax liabilities.   Petitioners paid

approximately $10,500 to attend the NTS workshop.   Mr. Fritz

claimed to be a lawyer and “world authority on complex trusts.”
                                - 7 -
       Petitioner did not seek a second opinion regarding the

legitimacy of NTS or its trust services.    Petitioner did not

investigate Mr. Fritz’s background or attempt to confirm

Mr. Fritz’s qualifications.    Petitioner did not consult his

personal accountant about NTS’s proposal that he establish trusts

as a means to protect assets and reduce tax liabilities.

Petitioners did not research NTS.

       Instead, in addition to Mr. Fritz, petitioners relied on

information provided to them by representatives of NTS and by

other purported clients of NTS.    Other than NTS’s promotional

materials, petitioners did not receive any written advice, such

as a written opinion from an attorney, regarding the promotional

materials received from NTS.

       On August 21, 1997, pursuant to information received by

petitioners at the NTS seminar, petitioners formed RJ Pendergraft

Trust using a trust indenture notarized by an NTS employee.

Petitioner was the grantor, and petitioners were named trustees

of RJ Pendergraft Trust.

       On August 22, 1997, two additional trusts, NHUSS Trust and

In God We Trust, were formed using declarations of trust

notarized by an NTS employee, which declarations were prepared by

NTS.    NHUSS, Inc., was grantor, and petitioners were named

trustees of NHUSS Trust.    NHUSS Trust was grantor, and

petitioners were named trustees of In God We Trust.
                                - 8 -
     Upon the formation of NHUSS Trust, NHUSS, Inc., purportedly

contributed all of its assets relating to petitioners’ furniture

business to NHUSS Trust.    It is unclear what, if any, assets were

purportedly contributed to RJ Pendergraft Trust and to In God We

Trust.

     On May 31, 2002, petitioners reported to respondent their

status as trustees of the above three trusts on separate Forms

56, Notice Concerning Fiduciary Relationship.

     For 1999 and 2000, petitioners’ joint individual Federal

income tax returns and the three trusts’ Federal income tax

returns were prepared by Sam Fung (a.k.a. Fong), purportedly a

certified public accountant.

     In connection with the preparation of their joint Federal

income tax returns, petitioners provided to Mr. Fung check

registers relating to petitioners’ furniture business along with

a summary of the various related expenses (e.g., cost of goods

sold and transportation).

     Petitioners reported on their joint Federal income tax

returns for 1999 and 2000 nominal wages as taxable income, which,

after petitioners’ personal exemptions, was reduced to zero

taxable income and resulted in no tax liability being reported on

petitioners’ joint individual Federal income tax returns for 1999

and 2000.

     On trust Federal income tax returns for 1999 and 2000, filed

with respondent on behalf of NHUSS Trust, the income of the
                                     - 9 -
furniture business was reported, and improper deductions were

claimed for purported distributions to the other two trusts (RJ

Pendergraft Trust and In God We Trust) and for alleged business

expenses relating to petitioners’ furniture business, all of

which offset NHUSS Trust’s reported income, and resulted in no

tax liability being reported on NHUSS Trust’s tax returns.

       On the 1999 and 2000 trust Federal income tax returns of RJ

Pendergraft Trust and In God We Trust, various improper

deductions were claimed for business and personal expenses that

offset the trusts’ reported income and that resulted in no tax

liability being reported.

       The following schedules summarize the gross income, taxable

income (loss), and tax liability reported on the above joint

individual and trust Federal income tax returns for 1999 and

2000:


1999
                                                           Reported
  Date     Type of                            Gross        Taxable         Tax
  Filed    Return          Taxpayer           Income    Income (Loss)   Liability
04/10/00    Trust    NHUSS Trust             $886,784      ($69)           -0-
04/10/00    Trust    In God We Trust          149,180       (62)           -0-
04/10/00    Trust    RJ Pendergraft Trust     244,850       (72)           -0-
04/09/00    Joint    Petitioners                4,800        -0-           -0-


2000
                                                           Reported
  Date     Type of                            Gross        Taxable         Tax
  Filed    Return          Taxpayer           Income    Income (Loss)   Liability
04/10/01    Trust    NHUSS Trust             $805,884      ($73)           -0-
04/10/01    Trust    In God We Trust          169,425       (55)           -0-
04/10/01    Trust    RJ Pendergraft Trust     696,857       (60)           -0-
04/09/01    Joint    Petitioners                4,800        -0-           -0-
                             - 10 -
     On July 23, 2002, respondent’s revenue agent mailed a letter

to petitioner Joyce Pendergraft with respect to an examination of

petitioners’ 1999 and 2000 joint individual Federal income tax

returns, which letter included a request for certain books,

records, and documents relating to petitioners’ three trusts and

the sale of petitioners’ residence.

     On October 21, 2002, petitioners entered into a closing

agreement with respondent in which agreement petitioners agreed,

in principle, that for 1999 and 2000 the NHUSS Trust, the In God

We Trust, and the RJ Pendergraft Trust would be disregarded for

Federal income tax purposes, that the reported income and

expenses of the three trusts would be collapsed into petitioners’

income and expenses, and that petitioners were liable for the tax

deficiencies for 1999 and 2000 that related to the trusts’ income

and expenses being charged to petitioners.   In the above-

referenced October 21, 2002, closing agreement, the parties did

not finalize or specify the specific amounts of the income and

expenses of the trusts that would be charged to petitioners, nor

did the parties specify the amounts of the deficiencies that

would be charged to petitioners.4


     4
        We note that, in the closing agreement petitioners
entered into with respondent, petitioners appear to have agreed
that they would be liable for penalties relating to the collapse
of the income and expenses of the three trusts into petitioners’
income and expenses. However, in the trial stipulation, the
parties stipulate that petitioners’ liability for these penalties
is still in issue, and the parties have briefed this issue. We
                                                   (continued...)
                             - 11 -
     In November of 2002, a second request was made by respondent

for petitioners’ books and records.

     During respondent’s audit examination, petitioners did not

provide to respondent the requested books and records.

     On April 2, 2004, respondent mailed to petitioners separate

notices of deficiency for 1999 and 2000 with respect to NHUSS

Trust, RJ Pendergraft Trust, and In God We Trust.    In the notices

of deficiency, respondent determined, among other things, that in

1999 and 2000 various claimed deductions (e.g., deductions

relating to purported distributions made between the trusts and

business expense deductions relating to the furniture business)

were not properly substantiated, that in 1999 and 2000 rental

income was not reported, and that in 1999 and 2000 various

charitable deductions (including the charitable deduction for the

donation of the van) claimed by RJ Pendergraft Trust were not

properly substantiated.

     Also on April 2, 2004, respondent mailed to petitioners a

notice of deficiency for 1999 and 2000 relating to petitioners’

joint individual Federal income tax liabilities.    Respondent

determined, among other things, that for 1999 and 2000 the

trusts’ income and expenses were to be collapsed into

petitioners’ income and expenses and that for 2000 petitioners


     4
      (...continued)
treat petitioners’ liability for the negligence penalty with
respect to the tax adjustments relating to the three trusts as
still in issue.
                               - 12 -
realized $230,460 in taxable capital gain on the sale of their

residence.5

     During the trial of these consolidated cases involving both

petitioners and the trusts, the parties stipulated the specific

amounts that were to be collapsed from the trusts’ reported

income and expenses into petitioners’ income and expenses as

follows:


         1999
          Trust Income and Expenses to Be
              Charged to Petitioners             Amount
         NHUSS Trust income                     $881,779
         In God We Trust income adjustment      (149,180)
         Rental income                            19,200
         Cost of goods sold                     (230,005)
         Commission expense                      (20,189)
         Car and truck expense                   (10,000)
         Meals and entertainment expense          (4,082)
         Travel expense                             (837)
         Home office expense                        (417)




     5
        In the notice of deficiency respondent’s calculation of
petitioners’ gain on the sale of their residence was based on a
cost of $45,000 and, due to the failure of petitioners to provide
their books and records, improvements of only $14,540 for a total
cost basis of $59,540. The sale price of $790,000, less the
$59,540 cost basis, less the $500,000 exemption, equals the
$230,460 in capital gain computed by respondent in the notice of
deficiency. Once petitioners, prior to the scheduled trial,
herein, provided their books and records to respondent,
respondent agreed to an increase in petitioners’ cost basis in
the residence from $59,540 to $162,968.
                              - 13 -
       2000
        Trust Income and Expenses to Be
            Charged to Petitioners                Amount
       NHUSS Trust income                        $786,223
       In God We Trust income adjustment         (169,425)
       Ordinary recapture income                   29,770
       Rental income                               19,200
       Cost of goods sold                        (265,153)
       Gross income adjustment                    (70,000)
       Commission expense                         (27,334)
       Car and trust expense                      (18,374)*
       Home office expense                         (7,866)
       Meals and entertainment expense             (2,766)
       Travel expense                              (1,035)
       Charitable deduction                          (336)

          * At trial, respondent stated that the parties agreed
     that petitioners’ car and truck expenses in 2000 were
     $15,691. The parties, however, stipulated in writing that
     the car and truck expenses were $18,374, and we use the
     stipulated amount.


     The parties’ stipulation does not separately identify any

income and expenses of RJ Pendergraft Trust that are to be

charged to petitioners.   We understand, however, that the income

and expenses of RJ Pendergraft Trust were appropriately collapsed

into petitioners’ income and expenses and are reflected in the

above figures.


                              OPINION

Burden of Proof

     Generally, under section 7491(a), the burden of proof

relating to factual issues relevant to an individual’s tax

liability may shift from the taxpayer to respondent where the

taxpayer:   (1) Has credible evidence to substantiate the item in

question; (2) has maintained appropriate records relating
                              - 14 -
thereto; and (3) has cooperated with reasonable requests by

respondent for information relating to the item in question.

Sec. 7491(a)(1) and (2); Rule 142(a).

     Petitioners’ failure to cooperate with respondent during the

audit of the tax years at issue precludes a shift in the burden

of proof from petitioners to respondent with respect to the

factual issues before us.   Sec. 7491(a)(2)(B).   Further, during

respondent’s audit, petitioners failed to provide books and

records relating to the cost basis in their residence, and

petitioners failed to produce credible evidence with regard to

the value of the van.   See infra.   Generally, for purposes of

section 7491(a)(2)(B), later cooperation by taxpayers will not

act to cure prior noncooperation at examination or Appeals.    H.

Conf. Rept. 105-599, at 239 (1998), 1998-3 C.B. 747, 993-994.

     The burden of proof with respect to the amount of gain

petitioners realized on the sale of their residence and the

amount of petitioners’ charitable deduction relating to the van

is not shifted to respondent and remains on petitioners.


Gain on Sale of Petitioners’ Residence

     For 2000, under sections 61 and 1001, gain on the sale or

disposition of a personal residence is included in gross income,

subject to an exclusion, for married taxpayers filing joint tax

returns, of up to $500,000.   Sec. 121(a) and (b)(2).
                             - 15 -
     The basis of property is determined by its cost.     Sec. 1012;

Gandy v. Commissioner, T.C. Memo. 1997-532, affd. 199 F.3d 440

(5th Cir. 1999).

     Respondent contends that petitioners have failed to

substantiate a cost basis in their residence above the $163,148

determined by respondent at trial and that petitioners therefore

in 2000 realized $126,852 in capital gain on the sale.6

     With one exception noted below, we regard all of the costs

petitioners claim in excess of the $163,148 allowed by respondent

as not sufficiently substantiated.    We do allow petitioners an

increase of $24,945 in their cost basis to reflect additional

swimming pool improvement costs that are reflected in

petitioners’ contemporaneous records (Appendix B).    Respondent

himself has allowed all of the other costs reflected in Appendix

B, and evidence relating to the swimming pool is as credible as

the evidence relating to the other items allowed by respondent.

We believe petitioners’ contemporaneous records (Appendix B)

substantiate a $24,945 increase in the cost basis of the swimming

pool to a total swimming pool cost of $31,190.

     The following schedule reflects our findings with regard to

petitioners’ cost basis in the residence at the time of its sale

in 2000:



     6
        The sale price of $790,000, less the $163,148 cost basis
respondent allows, less the $500,000 exemption, equals $126,852
in capital gain.
                              - 16 -

                Residence Cost Basis         Amount
            Purchase price                  $ 45,000
            Improvements
              Residence                       28,000
              Swimming pool                   31,190
              Second story addition           16,665
              Interior remodeling              1,022
              Exterior                         3,527
              Alarm                              825
            Closing costs                     61,864
                          Total             $188,903


     We calculate petitioners’ taxable gain on the sale of the

residence in 2000 to be $101,907 ($790,000 sale price, less

$188,903 cost basis, less $500,000 exemption, equals $101,907

capital gain).


Charitable Deduction for Value of Van

     Generally, under section 170(a)(1), a deduction is allowed

for charitable contributions made within the year.     See sec.

1.170A-1, Income Tax Regs.   The regulations state that the amount

to be allowed for a charitable contribution of property other

than money is to be the “fair market value of the property at the

time of the contribution”.   Sec. 1.170A-1(c)(1), Income Tax Regs.

     Generally, the best evidence of fair market value is an

actual sale of the property in an arm’s-length transaction within

a reasonable time before or after the valuation date.     Berry
                              - 17 -
Petroleum Co. v. Commissioner, 104 T.C. 584, 637 (1995), affd.

142 F.3d 442 (9th Cir. 1998).7

     Six weeks after petitioners donated the van, petitioners’

van was sold for an amount almost $13,000 less than Mr. Sobrero’s

appraisal.   In his appraisal, Mr. Sobrero failed to account for

the mileage of the van, which mileage, based on petitioner’s

testimony, would have been approximately 220,000 miles.

     On the evidence before us, we conclude that the fair market

value of petitioners’ van on the date of its donation, for

purposes of the claimed charitable contribution deduction, was

its $6,900 sale price in December of 2000.


Section 6662(a) Negligence Penalty

     Under section 6662(a), a penalty is imposed on “any portion

of an underpayment of tax required to be shown on a return” that

is attributable to negligence or to disregard of the rules or

regulations.   Sec. 6662(b)(1).   Respondent has asserted the

negligence penalty against petitioners with respect to the

adjustments collapsing the reported income and expenses of the

three trusts into petitioners’ income and expenses, the gain on

the sale of petitioners’ residence, and the donation of the van.



     7
        We note that the American Jobs Creation Act of 2004, Pub.
L. 108-357, sec. 884, 118 Stat. 1632, effective for years
beginning after 2004, added a provision in sec. 170 generally
limiting a taxpayer’s charitable deduction relating to a donation
of a vehicle to the actual sales price of the vehicle when sold
by the donee organization. Sec. 170(f)(12)(A)(ii).
                               - 18 -
       For purposes of section 6662, negligence “includes any

failure to make a reasonable attempt to comply with the

provisions of this title,” and disregard “includes any careless,

reckless, or intentional disregard.”    Sec. 6662(c); Drum v.

Commissioner, T.C. Memo. 1994-433, affd. without published

opinion 61 F.3d 910 (9th Cir. 1995).

       Under section 7491(c), respondent bears the burden of

production with respect to the section 6662(a) penalty.    See also

Rule 142(a).    If, however, respondent satisfies his burden of

production, the taxpayer continues to have the burden of proof

with respect to imposition of this penalty.    Rule 142(a); Higbee

v. Commissioner, 116 T.C. 438 (2001).

       Respondent has satisfied his burden of production under

section 7491(c) because petitioners have conceded that they are

liable for increased tax liabilities relating to the collapse of

the trusts and because we have found that petitioners understated

the amount of gain they realized on the sale of their residence

and overstated the amount of their charitable deduction with

respect to the van.

       Petitioners unreasonably relied on NTS and Mr. Fritz in

establishing the three trusts, on unsubstantiated costs with

regard to the gain on the sale of the residence, and on an

appraisal that was not credible with regard to the value of the

van.
                             - 19 -
     Under the circumstances, we find that petitioners’

underpayments of Federal income taxes for 1999 and 2000 were due

to negligence and that petitioners are liable for the section

6662(a) negligence penalty for 1999 and 2000 with respect to the

adjustments relating to the three trusts, to the gain on the sale

of petitioners’ residence, and to the donation of the van.

     We have considered all arguments made herein, and, to the

extent not addressed, we conclude that they are without merit or

are irrelevant.

     To reflect the foregoing,



                                      Decisions will be entered

                                 under Rule 155.
                                      - 20 -

                                  Appendix A


Improvements and costs reflected on building permits obtained by petitioners:

   Category of Improvement     Date      Permit No.        Description      Cost
   Residence                 09/12/72    74338            Improvements    $28,000
   Swimming pool             05/07/73    76866            Swimming pool     3,500
   Second story addition     11/14/78    14021            Second story     16,665
   Interior remodeling       05/01/00    P0057485         Plumbing        Unknown
                                            Total                         $48,165




                                  Appendix B


Improvements and costs reflected in contemporaneous records maintained by
petitioners relating to improvements made to the residence:

             Category of Improvement               Cost
           Swimming pool
             Pool                              $15,370.00
             Cement                             14,200.00
             Wrought iron fence                  1,620.10
                                                             $31,190.10

           Interior remodeling
             Plumbing                          $   136.81
             Wallpaper and paint                   133.86
             Curtains and curtain rods             301.16
             Garage storage                        241.82
             Miscellaneous improvements            136.26
                                                                 949.91

           Exterior
             Landscaping                       $ 2,791.48
             Cabana, shed, and lighting            435.21
             Outside fence                          47.45
                                                               3,274.14
                              Total                          $35,414.15
                                     - 21 -
                                 Appendix C


Improvements and costs testified to at trial without supporting documentation:

                Category of Improvement                  Cost
     Installed alarm system                          $    1,864
                                                                  $   1,864

     Swimming pool
       Swimming pool and spa                         $ 15,370
       Cement deck                                     14,200
       Wrought iron fence                               1,200
       Replaced wrought iron fence                      2,000
       Solar panels                                     2,745
       Replaced solar panels                            3,000
                                                                      38,515

     Second story addition
       Added second story, stairs, plumbing          $ 60,000
                                                                      60,000

     Interior remodeling
       Re-carpeted (three times)                     $ 15,000
       Master bedroom, bathrooms, kitchen remodel      87,000
       Plumbing repairs                                 2,000
       Soft water system                                  750
       Re-tiled master bathroom shower                  5,000
       Replaced water heater (two times), etc.          2,000
       Chair molding, hallways                            750
       Crown molding, living and dining rooms           2,000
                                                                  114,500

     Exterior
       Plants, flower beds                           $    6,000
       Replaced gutters                                   1,200
       Storage shed, roof                                 3,900
       Second storage shed                                  800
       Replaced sidewalk                                  1,000
       Replaced garage door                                 700
       Backyard electrical lighting                         300
       Added door from garage to yard                       500
       Side yard electrical                                 500
       Garage exterior lighting                             450
       Replaced roof                                     22,500
       Shutters                                           3,341
       Replaced redwood fence (two times)                 2,000
                                                                    43,191
                                       Total                      $258,070
                                     - 22 -
                                 Appendix D


Additional improvements and costs agreed to by respondent:

                  Category of Improvement       Cost
               Alarm                           $ 825
                                                         $   825

               Swimming pool
                 Solar                         $2,745
                                                         2,745

               Interior remodeling
                 Garage cupboards              $   154
                 Dining                            255
                 Molding shutters                  613
                                                         1,022

               Exterior
                 Shutters                      $3,361
                 Trees                            166
                    Exterior total                        3,527
                               Total                     $8,119
