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Respondent determined deficiencies of $36,077 and $2,423,
respectively, in petitioners' Federal income taxes for 1998 and
1999.2
The issues for decision are: (1) In calculating the taxes
for the years 1998 and 1999 under the income-averaging provisions
of section 1301, whether net operating losses (NOL) for 2 of the
3 base years in the income-averaging computation, which had been
carried back to earlier years and for which income tax refunds
were received as a result of such carrybacks, should be added
back to the net income for such base years due to the tax
benefits realized from the NOL carrybacks,3 and (2) for the year
1998, whether a taxpayer's election to income average under
2 Clifford C. Haugen and Audrey A. Haugen were husband
and wife. Mr. Haugen died testate on May 7, 1998, and Mrs.
Haugen was the executrix of her late husband's estate. For the
year 1998, a joint Federal income tax return was filed in the
name of Clifford C. Haugen, Deceased, and Audrey A. Haugen. For
1999, Audrey A. Haugen filed her return as a single person.
Although the record does not reflect the heirs or successors to
Mr. Haugen's estate, the Court assumes, and the parties have not
placed at issue, any question that the heir, successor, or party
at interest regarding Mr. Haugen's estate is petitioner Audrey A.
Haugen. Consequently, the income and expenses for the year 1999,
reported on the 1999 Federal income tax return by Mrs. Haugen,
are presumed to include all interests of Mrs. Haugen's deceased
spouse. For convenience, the Court refers interchangeably to
"petitioner" or "petitioners" to include the interests of
Clifford C. Haugen, deceased, as well as those of Mrs. Haugen.
3 The Court's holding on the income-averaging issue for
the 1998 tax year also resolves the sole issue for the 1999 tax
year because one of the base years for 1999 is the year 1996, in
which a NOL was carried back, and a tax refund was received as a
result of the carryback.
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