Melvin J. Laney and Carolyn A. Laney - Page 1

                                       T.C. Memo. 1997-403                                            

                                     UNITED STATES TAX COURT                                          

                   MELVIN J. LANEY AND CAROLYN A. LANEY, Petitioners v.                               
                        COMMISSIONER OF INTERNAL REVENUE, Respondent                                  

                  Docket No. 24510-90.              Filed September 11, 1997.                         

                        Petitioners (Ps) claimed on the Schedule C of                                 
                  their 1983 tax return a $16.3 million “theft/casualty”                              
                  loss.  Ps carried forward this loss as a net operating                              
                  loss to their 1986, 1987, and 1988 tax returns.  Ps                                 
                  contend they are entitled to the claimed deductions,                                
                  even if the deductions are not otherwise allowable,                                 
                  because of a settlement agreement with the Department                               
                  of Justice in connection with a suit in the Court of                                
                  Claims.  Ps also contend that they had a binding                                    
                  settlement agreement with the Internal Revenue Service                              
                  in the instant case, allowing a net operating loss of                               
                  more than $0.5 million.                                                             
                        1. Held: Ps did not have a settlement agreement                               
                  with either the Department of Justice or the Internal                               
                  Revenue Service.                                                                    
                        2. Held, further, Ps are not entitled to loss                                 
                  carryover deductions on account of theft, casualty, or                              

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