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During the audit of petitioners' 1987 and 1988
returns, respondent's revenue agent noted that petitioner's
ending capital, as shown on the Schedules K-1 issued by the
partnerships, consisted of negative amounts. Respondent's
revenue agent asked petitioners' representatives why
petitioners had deducted losses in excess of their basis in
each of the partnerships. Petitioners' representatives
stated that their practice was to deduct the amount of
any loss shown on a Schedule K-1, irrespective of the
taxpayer's basis in the partnership. Respondent's agent
also asked petitioners' representatives to substantiate the
amount of any liabilities that would increase petitioner's
basis in any of the partnerships. Petitioners did not
provide any substantiation to respondent's agent.
Worthless Stock Issue
On the Schedules D, Capital Gains and Losses, filed
with their 1986 tax returns, both petitioners reported a
long-term capital loss in the amount of $4,441.35 that is
labeled "Windsor Resources". Respondent disallowed these
losses in the notices of deficiency.
Self-Employment Tax
For 1987, each petitioner filed a Schedule SE,
Computation of Social Security Self-Employment Tax, with
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