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amount of $620,000. Respondent determined in the notices
of deficiency that petitioners are not entitled to deduct
ordinary losses of $620,000, but are entitled to deduct
long-term capital losses of $560,000. Several aspects
of respondent's determinations should be noted. First,
respondent's determinations that petitioners realized
capital losses in 1986 are, in effect, determinations
that the losses qualify under section 165(c)(1) as losses
incurred in a trade or business, or under section 165(c)(2)
as losses incurred in a transaction entered into for
profit. We have no reason, to conclude that respondent
determined that the losses arose from a casualty within
the meaning of section 165(c)(3).
Second, respondent determined that the amount of the
capital loss that can be deducted by each petitioner is
$560,000, rather than $620,000, the amount claimed on
their returns. In effect, respondent determined that
petitioner's basis in the eight club memberships that
became worthless was $1,120,000 (i.e., 2 x $560,000),
rather than $1,240,000 (i.e., 2 x $620,000). Presumably,
respondent agreed that petitioner's basis included each of
the eight initiation fee notes payable to the club in the
principal amount of $140,000, but did not include the
membership fees of $15,000, for each membership that
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