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1972, through March 21, 1973, petitioner reported 100 percent
ownership of Diesel Power's voting stock on an Information Return
with Respect to Controlled Foreign Corporation (Form 2952) filed
with the Internal Revenue Service. Diesel Power's foreign
commission deposits from the Bank of America in New York City,
combined with the retained earnings and amounts due shareholders
on the Diesel Power financial statements, show that during its
fiscal year ending March 20, 1975, retained earnings and profits
exceeded $5 million.
VI. Claimed Capital Losses for 1978 and 1979
Petitioner claimed capital losses for 1978 and 1979. On his
1978 Federal income tax return petitioner reported a short-term
capital loss of $15,767 from the sale of commodity futures. He
deducted $3,000 of the reported loss and carried over to his 1979
return a loss of $12,767. For 1979 he applied the short-term
capital loss carryover of $12,767 against a short-term capital
gain of $7,500. In 1979 he also reported a net long-term loss of
$8,229 from small business corporations. He deducted $3,000 of
the claimed net losses in 1979.
In the notice of deficiency for 1978 and 1979 respondent
disallowed the claimed losses and determined that petitioner was
required to include the $7,500 short-term gain in his 1979
taxable income. Respondent disallowed the losses because
petitioner did not establish that they were incurred, nor did
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