Charles A. Ballard - Page 11

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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                    
          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