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activities. Respondent's notice of deficiency states as follows:
The total deductions of $98,183.00 shown on your
return are reduced by $39,186.00 because to the
extent that the total deductions from passive
activities exceed the total income from such
activities for the tax year, the excess is not
allowed as a deduction for that year. Therefore,
your taxable income for the taxable year ended
December 31, 1992 is increased $39,186.00.
The total deductions of $105,470.00 shown on your
return are reduced by $51,416.00 because to the
extent that the total deductions from passive
activities exceed the total income from such
activities for the tax year, the excess is not
allowed as a deduction for that year. Therefore,
your taxable income for the taxable year ended
December 31, 1993 is increased $51,416.00.
Respondent determined that petitioner is liable for
the additions to tax under section 6651(a)(1) for 1989
because petitioner's 1989 return was not timely.
Petitioner does not challenge this adjustment. Finally,
respondent determined that petitioner is liable for the
addition to tax under section 6662(a) for the years in
issue because of a substantial understatement of tax with
respect to each of those years.
OPINION
Personal Holding Company Tax
The first issue for decision is whether petitioner
is subject to the personal holding company tax imposed by
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