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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