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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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