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pursuant to section 1366, nor are they entitled to a deduction
pursuant to section 179.4
Petitioners also claimed a deduction for a long-term capital
loss carryover from 1987 in the amount of $61,468. This
carryover results primarily from two losses claimed by
petitioners in 1987, which they attempt to carry forward to 1988.
First, petitioners claimed a section 1231 loss of $66,850 for
Vosburg on their 1987 Schedule K-1. In addition, they claimed a
long-term capital loss of $8,566 on the March 11, 1987, sale of
stock in the Chez Jacques Corp. According to the notice of
deficiency in this case, these losses were disallowed by
respondent during an audit of petitioners' 1987 tax return.
Section 165(a) generally permits the deduction of losses
sustained during the taxable year and not compensated for by
insurance or otherwise. However, capital losses on the sale or
exchange of capital assets are limited to the extent allowed
under sections 1211 and 1212. Sec. 165(f). Subject to the
limitations of section 1211,5 taxpayers can carry forward their
4Based on the record before us, we also question whether
petitioners were even shareholders of Vosburg in 1988. Instead,
it appears that the "Oliver Q. Foust and Talietha Foust
Reversionary Trust" was the shareholder at that time.
5Sec. 1211 limits the amount of losses taxpayers can claim
in any taxable year. Deductions for losses on the sale or
exchange of capital assets are permitted only to the extent of
the gain from such sales or exchanges, plus the lower of (1)
$3,000 ($1,500 in the case of a married individual filing
separately); or (2) the excess of such losses over such gains.
(continued...)
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