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To understand the dynamics of the disagreement, we must
consider some of the items reported on the 1983 Federal income
tax return and the adjustments made to that return in the notice
of deficiency. The return contained three significant items of
income: $100,000 of wages, $122,356 of capital gain, and $19,912
of rents or royalities. The capital gain reported was a netted
and reduced amount composed of a net long-term capital gain of
$656,139 reduced by the $322,340 short-term capital loss
carryover from 1980 and a $27,908 long-term capital loss, to
arrive at $305,891, 40 percent of which ($122,356) was carried
from Schedule D to page 1 of the return.
Accordingly, without considering the leasing transaction
loss ($900,5256), approximately $242,000 of income was reported
on page 1 of the 1983 return. Respondent, in the notice of
deficiency, allowed $55,803 of the short-term capital loss
carryover due to the fact that $271,800 had been used for the
1980 year. Respondent's determination resulted in $228,971.20 of
capital gain income instead of the $122,356 reported, or an
increase of $106,615.20. The $106,615.20 increase is the number
on which respondent based the Rule 155 computation of
petitioner's $53,307.36 income tax liability. Comparing the
$53,307.36 and the $119,644.76 deficiency set forth in the notice
of deficiency reveals the dichotomy between the portion of the
6 The loss was reduced by $2,227 of miscellaneous income for
a net amount of $898,298.
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