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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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