Grant K. Hagestad - Page 2

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          decision is whether respondent may adjust petitioner's 1987                 
          income under the mitigation provisions found in sections 1311 to            
          1315.                                                                       


          Background                                                                  
               This case was submitted fully stipulated under Rule 122.               
          The stipulation of facts and exhibits are incorporated herein by            
          this reference and found accordingly.                                       
               At the time the petition was filed in this case, petitioner            
          resided in Carson City, Nevada.  Petitioner timely filed a                  
          Federal income tax return for 1987, subsequent to a valid                   
          extension, on July 18, 1988.  Respondent mailed a statutory                 
          notice of deficiency to petitioner on May 12, 1995, for the 1987            
          taxable year (the 1995 notice of deficiency).                               
               During all relevant periods, petitioner was a cash-basis               
          taxpayer.  During 1986, petitioner purchased an interest in                 
          certain computer equipment for $135,000 cash and a note for the             
          balance of his $1,000,000 purchase price.  The equipment was then           
          leased to a third party.  Petitioner claimed deductible losses              
          from the leasing of the computer equipment (the computer leasing            
          deductions (CLDs)) in the following amounts:                                
                    Year                Amount                                        
                    1986                $200,250                                      
                    1987                321,002                                       
                    1988                51,972                                        





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