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Revenue Code as in effect for the year at issue, and Rule
references are to the Tax Court Rules of Practice and Procedure.
After concessions by the parties, the sole issue is whether
respondent correctly calculated petitioners' deficiency for
taxable year 1985. This case was submitted without a trial
pursuant to Rule 122. The facts related herein were either
stipulated or derived from statements of various individuals that
the parties stipulated could be considered in this proceeding.
Background
Petitioners resided in Brookline, Massachusetts, at the time
they filed the petition herein. Petitioners timely filed their
1985 joint Federal income tax return. On audit in 1988,
respondent determined an adjustment in the amount of $16,812 for
taxable year 1985. Petitioners agreed to the adjustment and
waived restrictions on assessment of the additional tax due.
Petitioners incurred net operating losses (NOL or NOLs) in
1987 and 1988 and reported the losses on their joint Federal
income tax returns (Forms 1040) for those years. In December
1990, petitioners filed a Form 1040X, Amended U.S. Individual
Income Tax Return, for taxable year 1985, carrying back the NOL
arising in taxable year 1988 (first amended return). As a result
of the first amended return, petitioners had an overpayment of
$97,312. The prior assessment of $16,812, however, was still
due. On February 11, 1991, respondent reduced the overpayment by
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