French E. Hickman and Janice C. Hickman - Page 9

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          165(g)(1).  The bank was in a failing condition and has since               
          been merged into another bank."  Because of the $3,000 limitation           
          imposed by section 1211(b) for each taxable year on the amount of           
          net capital loss by which an individual may reduce income,                  
          petitioners reduced the income reported in their 1992 return by             
          $3,000 of the claimed 1992 worthless stock loss reported in their           
          1992 Schedule D.  Petitioners carried over the remainder of that            
          claimed loss to their 1993 Schedule D and reduced the income                
          reported in their 1993 return by $3,000 of that claimed loss                
          carryover.                                                                  
               Respondent issued a notice of deficiency (notice) to peti-             
          tioners for the years at issue.  Respondent determined in the               
          notice, inter alia, that for 1991, 1992, and 1993 petitioners are           
          not entitled to $96,737, $81,165, and $31,712, respectively, of             
          the interest deductions that they claimed in Schedules A of their           
          returns for those years.  The following explanation was set forth           
          in the notice for the disallowance of those claimed interest                
          deductions:                                                                 
               It is determined that your deduction for investment                    
               interest expenses is limited to your net investment                    
               income.  It is determined that your deduction for home                 
               mortgage interest excess [sic] the $100,000 limit.                     
               Respondent determined in the notice that for 1992 petition-            
          ers had a net long-term capital gain of $98,198, rather than a              
          net long-term capital loss of $194,118, and that petitioners had            
          no capital loss carryover to 1993.  Consequently, respondent                




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