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Net Operating Loss
Petitioner filed a wrongful termination suit against a
former employer in 1984, claiming lost wages and benefits of
$209,367 based upon his attorney's calculations. The lawsuit was
settled for $27,500, which petitioners correctly reported as
taxable income in the year received. In 1987, petitioners began
deducting, as an NOL, the difference between $209,367 and
$27,500. Petitioners have never included in taxable income, nor
been subject to tax on, the amounts which they are deducting as
an NOL ($29,506 in 1991 and $26,880 in 1992).
Trade or Business
During the late 1970's, petitioner formed the Presto Co., a
sole proprietorship which involved various musical activities.
Petitioners reported gross receipts on their Schedules C for tax
years through 1985 consisting of income from teaching piano
lessons, piano sales, and piano tuning and repair. In 1985,
petitioners' Schedule C showed gross receipts of $448 from piano
lessons; petitioner ceased teaching piano lessons in that year.
Petitioners reported no gross receipts from music activities
on their Schedules C for 1986, 1987, 1988, 1989, 1990, and 1992
tax years. (Gross receipts shown on petitioners' Schedule C for
1991 in the amount of $650 consisted of income from consulting
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