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averaging (base) years were 1995, 1996, and 1997. For the 1999
tax year, the base years were 1996, 1997, and 1998.
On Schedule J of the 1998 return, the taxable income of the
3 base years in the income-averaging computation was listed as
follows:
1995 taxable income ($121,767)
1996 taxable income ($64,010)
1997 taxable income $248,208
Petitioners did not eliminate the NOLs on Schedule J of their
1995 and 1996 returns to reflect the carryback of the NOLs to the
years 1992 and 1993.6
After the 1998 return was filed, petitioners were assessed
$52,607 for the alternative minimum tax under section 55. That
assessment was later reduced to $30,087. Thereafter, the
examination division of the IRS made income adjustments to the
5(...continued)
1998, of the $476,055 in taxable income, the elected farm income
was $192,030. For the year 1999, of the $414,742 in taxable
income, the elected farm income was $46,515. Respondent has not
challenged the elected farm income amounts for the 2 years before
the Court, nor does respondent deny petitioners' entitlement to
income averaging.
6 In the carryback to 1992 and 1993, the NOLs for 1995
and 1996 were, respectively, $116,767 and $58,910, as sec.
172(d)(3) provides that no deduction for sec. 151 personal
exemptions shall be allowed in the determination of a NOL. The
reductions, therefore, of $5,000 and $5,100, respectively, for
1995 and 1996 from the negative income amounts reported on the
1995 and 1996 returns represent the elimination of the personal
exemptions claimed on the returns.
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