Daniel R. Leavell and Eva Lovene Leavell - Page 20

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                        Eva's Claimed $20,678 NOL Re:  Oil Production                                     
                  With petitioners' 1986 joint Federal income tax return, Eva                             
             filed a Schedule C claiming a net operating loss from oil                                    
             production of $20,678.  On audit, respondent disallowed this                                 
             claimed loss on the grounds that no portion thereof had been                                 
             substantiated.                                                                               
                  At trial, petitioners offered documentation in support of                               
             claimed oil production expenses that indicates that many of the                              
             purported expenses reflected on the Schedule C relate to the                                 
             business of L & L Supply.  Accordingly, the claimed expenses                                 
             may already have been claimed by L & L Supply on the Schedule C                              
             relating to that separate business.  Further, based on the                                   
             referred-to documentation, $12,000 of the expenses giving rise                               
             to the claimed $20,678 loss from oil production appear to                                    
             constitute a payment to G.R. Penn Production Co., a company                                  
             controlled by petitioners' son, and $5,000 of the claimed                                    
             expenses appear to represent not expenses, but rather receipts                               
             or income petitioners received from G.R. Penn Production Co.                                 
                  We disallow Eva’s claimed $20,678 net operating loss for                                
             1986 relating to oil production.                                                             

             Additions To Tax                                                                             
                  Petitioners have offered no credible excuse for the late                                
             filing of their 1985 and 1986 joint Federal income tax returns.                              







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