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On their joint Federal income tax return for 1992,
petitioners reported income attributable to WIS in the amount of
$6,777 and a loss attributable to SPS in the amount of $40,560.
They also claimed a $129,972 deduction for “other losses”. The
copy of petitioners’ return for 1992 that was submitted in
evidence does not disclose how the “other losses” were computed.
It appears, however, that this figure simply represents the
$136,748 deficit in shareholder’s equity of WIS reported for 1991
reduced by $6,777 of income earned by WIS in 1992.
On their joint Federal income tax return for 1993,
petitioners reported a $36,464 loss attributable to SPS.
The notice of deficiency explained respondent’s
determination regarding the losses claimed from WIS for 1991 and
1992 as follows:
1.e. The deductions of $136,748.00 and $129,972.00
shown on your returns for the respective taxable years
ended December 31, 1991, and 1992, as “other losses”
are not allowable because no basis in fact for such
“other losses” exists (See explanation 1.f.). * * *
1.f. S corporation losses are limited by section 1366
of the Internal Revenue Code to the extent of your
basis in stock in the S corporation and your adjusted
basis of any indebtedness of the S corporation to you.
Accordingly, it is determined that losses in the
amounts of $136,748.00 and $129,972.00[4] from Williams
Investigative and Security Services, Inc., are
allowable only to the extent of $12,331.00 for the
taxable year ended December 31, 1991. * * *
4 At trial and on brief, respondent’s counsel mistakenly
treated this amount as attributable to SPS.
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