2
determined deficiencies in petitioners' Federal income taxes for
1986 and 1987 in the respective amounts of $3,475 and $4,258.
The parties have reached agreement concerning most of the
adjustments involved in respondent's determinations, and the
issues remaining for decision are: (1) Whether petitioners are
entitled to capitalize certain expenses attributable to their
farming business and claimed as current deductions on Schedules F
of their 1986 through 1990 Federal income tax returns; and (2)
whether petitioners are entitled to a refund of an overpayment in
1986 attributable to the carryback of a net operating loss (NOL)
incurred in 1989. For ease of discussion, we address each issue
separately.
Some of the facts have been stipulated and are so found.
The stipulation of facts, stipulation of settled issues, and
exhibits received into evidence are incorporated herein by this
reference. Petitioners resided in Apopka, Florida, at the time
their petition was filed. References to petitioner are to John
Hodel.
Farming Expenses
On November 14, 1985, petitioners purchased 100 percent of
the stock of Federal Citrus Corp. (FCC), a corporation engaged in
the citrus grove business. The assets of FCC include 46 acres of
land, irrigation systems, fixtures attached to the land, and
fencing. During 1985, petitioners cleared the land and replaced
the citrus grove with ornamental ligustrum seedlings. They
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