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that they may deduct any of the expenses in excess of those
allowed by respondent.
8. Net Operating Loss Carryforward
Section 172 allows a taxpayer to deduct net operating
losses.
Respondent determined that petitioners did not have a net
operating loss carryforward from 1987 to 1988 because
respondent's adjustments to petitioner husband's 1987 Schedule C
activity eliminated the claimed net operating loss. Petitioners
attached to their brief appendix C, entitled "Loss Carry Forward
1987", which purports to be petitioners' calculation of their net
operating loss for 1987. They did not include references to the
record, as required by Rule 151(e)(3). Due to our conclusions
about petitioners' unreported income, business expenses, rent
expenses, and additional business deductions for 1987, we are not
convinced that petitioners had a net operating loss for 1987. We
sustain respondent's determination on this issue.
9. Additions to Tax for Fraud Under Section 6653(b) and
Penalty Under Section 6663(a)
a. Background
Respondent determined that petitioner husband (but not
petitioner wife) is liable for the addition to tax for fraud
under section 6653(b) for 1988 and the fraud penalty under
section 6663(a) for 1989. A taxpayer is liable for an addition
to tax or penalty for fraud equal to 75 percent of the part of
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