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that Mr. Sparrow is liable for the additions to tax for fraud.
Sec. 7454(a); Rule 142(b). With these basic principles in mind,
we turn to the issues for decision.
1. Proceeds from Sales of Stock
Gross income includes all income from whatever source
derived, including gains derived from dealings in property.
Sec. 61(a)(3). Respondent determined that petitioners failed to
report capital gains of $31,467, $268,968, and $177,181 for 1986,
1987, and 1988, respectively.2 Petitioners did not present any
persuasive evidence at trial to disprove this determination.
In addition, petitioners did not squarely address this issue in
their brief. The thrust of petitioners’ position on brief is
that they have enough net operating losses (NOLs) to offset any
tax that is payable on their unreported income.3 We are
unconvinced that this is true. Petitioners must prove their
right to deduct an NOL in any of the subject years. United
States v. Olympic Radio & Television, Inc., 349 U.S. 232, 235
(1955). Petitioners must also prove the amount (if any) of an
NOL. Jones v. Commissioner, 25 T.C. 1100, 1104 (1956), revd.
2 For 1986, respondent determined that petitioners realized
$84,804 of long-term capital gains in 1986, rather than the
$10,127 that they reported on their 1986 Form 1040.
3 Section 172 allows a taxpayer to deduct an NOL for a
taxable year. The amount of the NOL deduction equals the sum of
the NOL carryovers plus NOL carrybacks to that year. Sec.
172(a). Absent an election to the contrary, an NOL for any
taxable year must first be carried back 3 years and then forward
15 years. Sec. 172(b)(1)(A), (2), and (3).
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