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ceipts of Design Consultants, the unreported income for 1988 that
respondent determined in the notice included (1) the $49,525 of
1988 White Star compensation and (2) income resulting from the
disallowance by respondent of the net operating loss that peti-
tioners claimed for that year. With respect to petitioners'
claimed net operating loss, two of the components that petition-
ers claim gave rise to that loss were a casualty loss resulting
from a fire at the Seabrook property on March 13, 1988, and a
Schedule E loss of $28,195 that petitioners claimed in their 1988
return. With respect to petitioners' claimed casualty loss,
respondent determined that for 1988 petitioners had a gain of
$7,415, and not a loss, resulting from the fire at the Seabrook
property because the proceeds that petitioners received from
their insurance company as a result of that fire exceeded the
basis of the portion of the Seabrook property that the fire
destroyed. With respect to petitioners' claimed Schedule E loss
of $28,195, respondent determined that for 1988 petitioners had a
Schedule E gain of $60,930, and not a loss, because for that year
they had unreported rental income of $9,315, they overstated
their deductions with respect to their rental property by
$32,531, and their income with respect to their S corporation
White Star was understated by $53,230.
Respondent's determinations in the notice of Design Consul-
tants' unreported gross receipts were based on the bank deposits
method analysis conducted by Mr. Kaply. As is reflected in the
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