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For the years 1987, 1988, and 1989, FOTA filed its Federal
income tax returns in accordance with an election made pursuant
to section 1362(a), commonly referred to as an S election. For
the years in issue, petitioner's individual Federal income tax
returns reflected petitioner's distributive share of the losses
incurred by FOTA in the amounts of $45,035, $23,180, and $63,512,
respectively. Although the record is incomplete as to the
circumstances surrounding the filing of FOTA's Federal income tax
returns for the years in issue and respondent's examination of
those returns, it appears that respondent made adjustments to the
amount of losses reported by FOTA for the years 1987, 1988, and
1989. In a portion of FOTA's examination report included with
the notice of deficiency issued to petitioner, respondent
provided the following explanation for certain of the
adjustments:3
The deductions for business use of your dwelling unit
are limited to the gross income from the business
activity after subtracting the business part of your
real estate taxes, mortgage interest, and expenditures
required for the activity but not allocable to the use
of the unit itself.
[emphasis added]. The Court was invited to ignore the exhibit
when this inconsistency was called to the attention of the
parties in a posttrial conference. Because the technical
ownership of the building has no impact on the outcome of the
issue under consideration, we honor the stipulation and proceed
as though petitioner was, in fact, the owner of the building.
3Certain allocations and other adjustments were made by
respondent in connection with her examinations of FOTA and
petitioner. Petitioner only contests the adjustments that depend
upon the resolution of the issue disputed in this proceeding.
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Last modified: May 25, 2011