- 25 -
Each petitioner also reported on the Schedule C an
ordinary loss in the amount of $620,000, labeled "Loss on
worthlessness of eight Moonlight Beach Club time-share
Memberships which Could Not Be Sold." This amount is one-
half of the aggregate cost of the eight club memberships
held by petitioner when the project collapsed ($155,000
x 8 = $1,240,000).
Finally, each petitioner reported on a Schedule E,
Supplemental Income Schedule, one-half of petitioner's
share of the estimated gain realized by the joint venture
from its sale of the six villas and land to the club.
Thus, each petitioner reported gain in the amount of
$332,100 (i.e., one-half of $664,200). The return of each
petitioner states that the "amount shown is an estimate."
In the subject notices of deficiency, respondent
disallowed the loss that each petitioner claimed on his
and her 1986 return in the amount of $620,000 due to the
worthlessness of eight memberships in the club. The
notices give the following explanation of these adjust-
ments: "Since nonbusiness worthlessness of assests [sic]
must be treated as capital losses, we have adjusted your
income as shown in the accompanying schedule." The notices
of deficiency permit petitioners to treat the loss from the
worthlessness of the club memberships as long-term capital
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011