- 23 -
and that he was allowing the claimed deduction in that return
with respect to that loss. Mr. Gordon related that information
to Ms. Gordon. On May 1, 1989, the IRS issued a letter (no-
change letter) to the Gordons formally notifying them that the
examination of their 1986 return showed that "no change" was
necessary in the tax reported in that return.
On December 7, 1988, the IRS received the Gordons' 1986
amended return that included an amended Form 2119. In their 1986
amended return, the Gordons included in their income a capital
gain of $29,391 from the sale of the Roslyn residence, claimed a
net operating loss deduction of $35,065 that was attributable to
an alleged net operating loss carryover from their taxable year
1985, and reported that the loss reported in their 1986 return
was increased by $5,674 from $276,999 to $282,673. In calculat-
ing the capital gain from the sale of the Roslyn residence that
was reported in the Gordons' 1986 amended return, the Gordons
(1) indicated in that amended return and/or the amended Form 2119
that was included as part of that return that they (a) sold the
Roslyn residence for $500,000, (b) had a basis in that residence,
as adjusted by the IRS on audit, of $120,500, rather than
$155,500, (c) consequently realized a gain of $379,500, rather
than $344,500, from the sale of that residence, and (d) replaced
that residence with the Lincoln Plaza residence; and (2) took
account of, inter alia, the purchase price of the Lincoln Plaza
residence in arriving at the portion of the capital gain from the
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