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Petitioners reported the following amounts of income and loss
on their 1979 and 1980 returns with respect to petitioner's
investment in Tandrill:
Income Short-Term Long-Term
Year (Loss) Capital Gain (Loss) Capital Gain
1979 ($1,758,908) $153,437 ---
1980 (34,512) (860,854) $1,414,760
In April 1980, petitioners filed a Form 1045, Application for
Tentative Refund, claiming entitlement to a net operating loss
carryback of $1,766,137 from 1979 to 1976.
Notice of Deficiency
In the notice of deficiency, respondent disallowed
petitioners’ allocable share of losses arising from Tandrill’s
transactions on the premise that no profit motive existed with
respect to the transactions.16 Respondent determined the following
corrected amounts of income and loss petitioner realized through
his investment in Tandrill:
Income Short-Term Long-Term
Year (Loss) Capital Gain Capital Gain
1979 $5,010 --- ---
1980 33,811 --- ---
16 Respondent also determined that “the transactions at
issue were either shams or devoid of the substance necessary for
recognition for federal income tax purposes.” Respondent’s
amended answer reiterated this position. However, at trial,
respondent’s counsel informed the Court that the only issue for
decision in this regard is whether Tandrill entered into the
transactions at issue primarily for profit. We therefore will
assume that Tandrill’s transactions were not shams.
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