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White advised petitioners that a theft deduction was appropriate.
In October 1989, petitioners filed amended returns for 1986
and 1987. They claimed a net operating loss carryover (from 1985)
of $578,944 in 1986 and $445,504 in 1987. On their 1988 return,
petitioners claimed a net operating loss carryover from 1987 of
$640,600. Their 1988 return overstated the claimed net operating
loss carryover from 1987 by approximately $316,400.2
Petitioners did not file an election to relinquish the
carryback period with respect to the claimed net operating loss
pursuant to sec. 172(b)(3)(C) with their 1985 income tax return or
on their amended 1985 income tax return. By letter dated August 2,
1993, petitioners submitted a request for relief under Rev. Proc.
92-85, 1992-2 C.B. 490, seeking an extension of time to make an
election under sec. 172(b)(3) to relinquish the carryback period
with respect to the claimed net operating loss. On May 27, 1994,
respondent ruled that petitioners were not eligible for the relief
sought. Petitioners did not appeal respondent’s ruling.
OPINION
Issue 1. Theft Loss
Petitioners’ entitlement to a net operating loss carryover
depends upon the characterization of their transactions with
2 The arithmetical computation for the overstatement of
the net operating loss carryover is as follows:
NOL carryover reported on 1988 return $640,600
NOL carryover reported on 1987 return $445,500
NOL carryover used on 1987 return 121,300
Unused NOL carryover from 1987 324,200
Overstatement of carryover on 1988 return $316,400
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