Gary L. Pierce - Page 10

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          as a loss that they deducted on their 1989 Federal income tax               
          return in the amount of $2,121,283.                                         
               Petitioners filed an Application for Tentative Refund for              
          1989 claiming NOL carrybacks to the years 1986 and 1987.  As a              
          result, petitioners' entire tax liability for the year 1986 in              
          the amount of $71,784 was eliminated, and petitioners’ income tax           
          liability for 1987 was reduced from $537,770 to $37,937.                    
          Petitioners agreed to, and respondent assessed, an increase in              
          their 1987 income tax liability of $42,990, bringing petitioners'           
          remaining 1987 income tax liability to $80,927.                             
               Mary Catherine reported a loss for 1990 in the amount of               
          $5,372,348, $4,687,700 of which was attributable to the                     
          Minnechaug writedown.  However, as of the beginning of 1990                 
          petitioner lacked sufficient basis in Mary Catherine to take                
          advantage of such a loss from that year.  In 1990, petitioner               
          lent Mary Catherine $1,743,893, increasing his adjusted basis and           
          his amount at risk, thereby enabling petitioners to claim a                 
          deductible loss in the amount of $1,743,893 on their 1990 Federal           
          income tax return.                                                          
               Petitioners filed an Application for Tentative Refund for              
          1990 claiming NOL carrybacks to the years 1987 and 1988.                    
          Respondent reviewed this Application for Tentative Refund and               
          refunded the remainder of petitioners’ 1987 tax paid in the                 
          amount of $80,927.  The additional carryback allowed by                     





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