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It is unclear from the record that petitioner's $18,750
investment constituted an investment in stock. Furthermore,
there is no evidence in the record, other than petitioner's
unconvincing and self-serving testimony, that if his investment
in Geotech was in stock, that said stock satisfied any of the
requirements of section 1244. Sec. 1244(c). Petitioner's
testimony was that his initial investment was in an overriding
royalty in the oil to be produced from the Rio Blanco lease, and
that it was not until the failure of both the Rio Blanco lease
and Royalty that petitioner even requested Geotech stock, which
he never received.
We find that petitioner has failed to prove that he
satisfies the requirements necessary to entitle him to ordinary
loss treatment pursuant to section 1244 on the loss of his
investment. Rule 142(a).
Petitioner alternatively contends that he should be entitled
to an ordinary loss because his investment in Royalty was
excluded from the passive loss rules under section 469.
The passive loss rules of section 469 place limitations on
the deduction of losses related to passive activities; namely,
from business activities in which a taxpayer does not materially
participate. Sec. 469(a). However, a working interest in oil
and gas properties is treated as per se nonpassive provided that
the taxpayer's form of ownership does not limit his liability.
Sec. 469(c)(3)(A).
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Last modified: May 25, 2011