Christine C. Deignan - Page 4

                                        - 4 -                                         
          by filing an amended U.S. Individual Income Tax Return, Form                
          1040X, and claimed a refund for 1986.                                       
               In the notice of deficiency, the Commissioner determined               
          that petitioner was not in the business of constructing and                 
          selling houses.  As a result, petitioner's claimed $179,596                 
          ordinary loss was recharacterized as a capital loss.  Because               
          section 12112 limits the deductibility of capital losses of                 
          individual taxpayers to $3,000 a year, respondent also denied the           
          claimed net operating loss carryback deduction.                             
               The parties have stipulated that if respondent's                       
          determination is sustained, petitioner's taxable income for 1986            
          must be increased by $73,967.  The parties have also stipulated             
          as to certain other adjustments that were taken into account in             
          the deficiency notice.                                                      
               Section 165(a) generally allows taxpayers to deduct any                
          losses sustained during the taxable year that are not compensated           
          for by insurance or otherwise.  Section 165(c) limits the scope             
          of this deduction for individuals.  Petitioner claims that the              
          deduction in controversy is an ordinary loss, allowable under               
          section 165(c)(1) as a loss "incurred in a trade or business."              
                    If a loss is characterized as capital, however, it is             
          subject to even stricter treatment than ordinary losses under the           

          2 Unless otherwise indicated, all section references are to                 
          the Internal Revenue Code in effect for the years at issue, and             
          all Rule references are to the Tax Court Rules of Practice and              

Page:  Previous  1  2  3  4  5  6  7  8  9  10  Next

Last modified: May 25, 2011