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The results of petitioner's securities trading for each of
the years at issue were reported on Schedule C using a method
that tracked changes in an aggregate trading account. The ending
balance of this account was reported as "gross receipts" for the
taxable year, while the sum of the initial balance plus losses
incurred during the taxable year was reported as "cost of goods
sold". The Schedule C for each year showed a net loss equal to
the excess of the amount of cost of goods sold and certain
business expenses over gross receipts (gross receipts were not
reported for 1985). No information provided on the returns
identified what "gross receipts" and "cost of goods sold"
represented. The reported amounts, taken from the worksheets
that Leuschner had received from petitioner, overstated the
actual losses by $184,598 for 1985, $76,910 for 1987, and $46,281
for 1988. The Forms 1040 for each year described petitioner's
occupation as "trader" and the Schedules C for 1985 and 1988
further identified the business activity to which the cost items
were attributable using simply the word "trading". The type of
asset traded was not disclosed. In addition, for 1985 and 1987
petitioners reported on Schedule C certain expenses that should
have been reported on Schedule A, and they claimed losses from
partnerships and S corporations in amounts that exceeded
petitioner's basis and amount at risk by $5,444 for 1985,
$154,468 for 1987, and $379,613 for 1988.
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