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Negligence; Substantial Understatement
No portions of petitioner’s underpayments for 1986 and 1987
were due to negligence.
The principal purpose of Ballard Marine was not tax
avoidance.
OPINION
I. Introduction
Under section 1366, a shareholder in an S corporation is
entitled to take into account his or her pro rata share of the
corporation’s losses. See sec. 1366(a). Ballard Marine was an S
corporation for 1986 and 1987, and we must determine the extent
of Ballard Marine’s allowable losses for those years.
Respondent’s explanation for her adjustments with respect to
those losses is that they were incurred in an activity not
entered into for profit. Respondent has also determined
additions to tax as set forth above.
II. Deficiencies
A. Section 183--For-Profit Requirement
Section 183(a) provides:
In the case of an activity engaged in by an individual
or an S corporation, if such activity is not engaged in
for profit, no deduction attributable to such activity
shall be allowed under this chapter except as provided
in this section.
Section 183(c) provides:
For purposes of this section, the term “activity not
engaged in for profit” means any activity other than
one with respect to which deductions are allowable for
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Last modified: May 25, 2011