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operating loss (NOL) deductions in the amount of $2,240,458 and
$2,200,426, on his 1989 and 1990 income tax returns,
respectively, with respect to his Sentinel EPE and EPS recyclers.
The NOL deductions represented carryforwards of NOL's claimed by
petitioner for the taxable years 1983 through 1988.
E. The Notices of Deficiency
In the notices of deficiency, respondent disallowed all
items of loss, deductions, and credits related to the Sentinel
recyclers and increased petitioner's income accordingly.
In addition, respondent determined that, for 1989,
petitioner was liable for the accuracy-related penalty under
section 6662(a) based on: (1) Negligence; (2) substantial
understatement of income tax liability; and (3) substantial
valuation misstatement. See sec. 6662(b)(1), (2), and (3).
Respondent also determined that, for 1989 and 1990, petitioner
was liable for the accuracy-related penalty based on negligence.
See sec. 6662(b)(1).
6(...continued)
years based on a 5-year recovery period and had therefore already
recovered the purported purchase price of those machines; i.e.,
$3,500,000.
Depreciation deductions for petitioner's Sentinel EPS
recyclers served to give rise to, or to increase, net operating
losses claimed by petitioner on returns for years prior to those
in issue, which net operating losses were carried forward to the
years in issue. In this regard, see the discussion in the text,
infra.
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