Alexander M. Moye and Judy H. Moye - Page 2

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                              The issues for decision are:                                                                                                                 
                              1.        Whether petitioners' police dog training business was a                                                                            
                    sole proprietorship or a C corporation in 1990.  If it was a sole                                                                                      
                    proprietorship, petitioners may deduct its net loss of $159,426                                                                                        
                    on their individual income tax return.  We hold that petitioners'                                                                                      
                    police dog training business was incorporated on February 28,                                                                                          
                    1990, and that petitioners may not deduct the loss on their                                                                                            
                    personal income tax return for 1990.                                                                                                                   
                              2.        Whether petitioners are liable for the substantial                                                                                 
                    understatement penalty under section 6662(a) for 1990.  We hold                                                                                        
                    that they are.                                                                                                                                         
                              Unless otherwise indicated, section references are to the                                                                                    
                    Internal Revenue Code as in effect for 1990.  Rule references are                                                                                      
                    to the Tax Court Rules of Practice and Procedure.  References to                                                                                       
                    petitioner are to Judy H. Moye.  References to Mr. Moye are to                                                                                         
                    Alexander M. Moye.                                                                                                                                     
                                                                 I.  FINDINGS OF FACT                                                                                      
                    A.        Petitioners                                                                                                                                  
                              Petitioners lived in Fayetteville, Georgia, when they filed                                                                                  
                    the petition in this case.  Mr. Moye is a retired airline pilot.                                                                                       
                    Petitioner served as a member of the Georgia State Senate around                                                                                       
                    the year in issue.                                                                                                                                     

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