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All section references are to the Internal Revenue Code in effect
for the years in issue. All Rule references are to the Tax Court
Rules of Practice and Procedure.
Petitioner Kondamodi S. Rao, hereinafter referred to as Dr.
Rao or petitioner, omitted gross income from his sole
proprietorship psychiatry practice in 1986, 1987, and 1988.
Petitioners deducted losses on their joint Federal income tax
returns in 1986, 1987, and 1988 from the operation of Forest Park
Medical Center (the medical center). After concessions, the
issues for decision are:
(1) Whether Dr. Rao1 is liable for the additions to tax for
fraud pursuant to section 6653(b)(1)(A) and (B) for 1986 and 1987
and section 6653(b)(1) for 1988;
(2) whether petitioners have substantiated deductions from
the operation of the medical center for 1986, 1987, and 1988 in
amounts greater than that allowed by respondent; and, if so,
(3) whether petitioners had amounts "at risk" under section
465 to enable them to deduct losses from the operation of Forest
Park Medical Center; and, if so,
(4) whether the passive loss rules under section 469 either
restrict or disallow petitioners' losses from the operation of
the medical center;
1 Respondent conceded the additions to tax for fraud for B.
Satyaveni Rao (Mrs. Rao) at trial.
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