Sealy Corporation and Subsidiaries, f.k.a. The Ohio Mattress Company and Subsidiaries, et al. - Page 7

                                             7                                               
          section 7602, which allows the IRS to examine taxpayers’ books                     
          and records to ascertain whether a return is correct.                              
                Petitioners reported that they had losses of $26,441,402 for                 
          1989, $60,447,014 for 1990, $35,262,161 for 1991, and $11,772,384                  
          for 1992 before taking into account net operating loss carrybacks                  
          or carryforwards.                                                                  
                On April 29, 1994, petitioners filed amended returns for                     
          their tax years ending November 30, 1989, 1990, 1991, and 1992.                    
          Petitioners filed an amended return for their tax year ending                      
          November 30, 1985, on April 29, 1994.  On it, petitioners claimed                  
          a carryback of $6,484,484 for specified liability losses under                     
          section 172(f)(1)(B).  Specified liability losses reported on                      
          petitioners’ 1989, 1990, 1991, and 1992 amended returns do not                     
          exceed the amount of net operating losses reported on those                        
          returns.                                                                           
                Respondent determined that petitioners may deduct $4,007,551                 
          as specified liability losses and $2,476,9332 as a loss subject                    
          to the general 3-year carryback and 15-year carryforward under                     
          section 172.                                                                       

                2 Petitioners concede that they may not deduct $29,000 of                    
          this amount.  Thus, the amount in dispute is $2,447,933.                           











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