Estate of Clifford C. Haugen - Page 10

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          Schedule J instructions were followed in the preparation and                
          filing of the 1998 and 1999 returns.  Petitioner argues that                
          respondent is erroneously applying internal revenue regulations             
          for section 1301 that were promulgated after the returns in                 
          question were filed.  Petitioner argues, in effect, that                    
          respondent is retroactively applying internal revenue regulations           
          to their 1998 and 1999 returns.                                             
               The promulgated internal revenue regulations under section             
          1301 do prohibit the double benefits realized by petitioners in             
          carrying back NOLs realized in base tax years in the section 1301           
          income-averaging process, receiving tax refunds from such                   
          carrybacks, and then using the same NOLs as negative income in              
          the section 1301 income-averaging computations for later years.             
               Respondent contends that, for the 2 base years, 1995 and               
          1996, in which NOLs were realized and carried back to prior years           
          and for which tax benefits were received, in determining the tax            
          for 1998 and 1999 under section 1301, the taxable income of the             
          base years in that computation in which NOLs were carried back,             
          should be adjusted by adding back to the income of the base years           
          the amounts of the carried back NOLs.  For example, the negative            
          taxable income of petitioners for 1995 was $121,767, of which the           
          NOL was $116,767.  The $116,767 NOL was carried back to 1992 and            
          1993, which resulted in tax refunds for 1992 and 1993 taxes.                
          Because of the tax benefits realized by petitioners from the NOL            





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