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all Rule references are to the Tax Court Rules of Practice and
Procedure. After concessions, the issues remaining for decision
are whether petitioners are entitled to deduct losses from
farming claimed on amended returns for the years in issue;
whether mortgage interest and property taxes paid by petitioners
are properly deducted on Schedule A or on Schedule F of their
returns; whether petitioners are entitled to deduct a net
operating loss carryforward from 1989; whether petitioners are
entitled to depreciation expense and legal expense deductions on
Schedule C; whether petitioners can change from the cash to the
accrual method of accounting on their Schedules C and F where
respondent’s permission was neither sought nor secured; and
whether petitioners are liable for the penalties for negligence.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioners resided in Boerne, Texas, at the time that they filed
their petition.
Petitioner Dan S. Mitchell (Mr. Mitchell) is a certified
public accountant who operates a sole proprietorship known as
Mitchell & Associates. Petitioner Nancy J. Mitchell
(Mrs. Mitchell) is a secretary with an accounting firm.
On November 24, 1986, petitioners purchased a 113.205-acre
rural property in Kendall County, Texas (the real property),
which includes a residence. Since its purchase, petitioners have
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