Donald L. Head - Page 4

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          Petitioner's 1986 and 1988 Federal Income Tax Returns                       
               On Schedule C (relating to petitioner's retail coin and stamp          
          business) attached to petitioner's 1986 Federal income tax return,          
          petitioner deducted $54,0001 as a loss from "foreclosure to pay             
          business loan".                                                             
               On petitioner's 1986 return, petitioner claimed a dependency           
          exemption for Florence H. Ratliff, who was listed on the return as          
          petitioner's "companion".  Petitioner was not married to Florence           
          H. Ratliff (Ms. Ratliff) in 1986 or 1988, nor were they related.            
               On his 1988 Federal income tax return, petitioner deducted             
          $17,769 as a net operating loss carryover from 1983, 1984, and              
          The Notice of Deficiency                                                    
               In the notice of deficiency, respondent disallowed $47,405 of          
          the claimed foreclosure loss, allowing the remaining $6,595 as an           
          interest expense.    Respondent  also  disallowed  the  claimed             
          dependency exemption for Ms. Ratliff. Finally, respondent                   
          disallowed the claimed $17,769 net operating loss carryover for             
          1988 on the basis that petitioner failed to timely elect to                 
          carryforward his net operating losses from tax years 1983 and 1984.         
          Moreover, respondent determined that petitioner had not established         
          that any portion of those prior years' losses would be available            
          for 1988.  Respondent accordingly increased petitioner's 1988               
          taxable income by $17,769.                                                  

               1    The record does not indicate how petitioner arrived at            
          the $54,000 figure; his borrowings from NCB totaled $52,000.                

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