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scenario is a textbook example of the kind of abuse the
mitigation provisions were designed to prevent. Petitioner, on
the other hand, contends that the 1987 CLD was disallowed, and
that the fact that respondent failed timely to assess a
deficiency does not alter this fact. Thus, petitioner argues, he
did not maintain an inconsistent position by carrying forward the
disallowed deduction as permitted by section 465(a)(2).
Petitioner asserts that whatever unpaid tax liability which might
exist is due not to any action on the part of petitioner, but is
a consequence of respondent's litigation gamble.
In Fruit of the Loom, Inc. v. Commissioner, 72 F.3d 1338,
1341-1342 (7th Cir. 1996), affg. T.C. Memo. 1994-492, the Court
of Appeals for the Seventh Circuit approved our articulation of
the following elements involved in determining whether the
mitigation provisions apply:
(1) An error occurred in a taxable year which cannot
otherwise be corrected by operation of law, sec. 1311(a);
(2) there was a determination, within the meaning of
section 1313(a), for another year with respect to the item
giving rise to the error, sec. 1311(a);
(3) the determination was within one of the categories
enumerated in section 1312 as a circumstance of adjustment
(e.g., a double allowance of a deduction, sec. 1312(2)),
sec. 1311(a); and
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