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All section references are to the Internal Revenue Code in
effect for the taxable years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure, unless
otherwise indicated. References to petitioner are to Richard L.
Matz.
After concessions,1 the issues for decision are: (1)
Whether for 1985 a $325,000 loss petitioners sustained relating
to Southern Express, a failed startup airline, is ordinary or
capital. This turns on whether petitioner was engaged in a trade
or business. We hold petitioner was not engaged in a trade or
business, and that the loss is a capital loss. (2) Whether for
1986 a $703,659 loss petitioners sustained relating to the
Bridgepoint project (Bridgepoint) is ordinary or capital, and
whether petitioners' interest expense incurred in 1986 in the
amount of $285,142 relating to Bridgepoint is investment
interest. This turns on whether petitioner was engaged in a
trade or business. We hold petitioner was not engaged in a trade
or business, that the loss is a capital loss, and that the
interest is investment interest. (3) Whether for 1987 losses
petitioners sustained relating to parcels of real property known
1 Both parties made concessions subsequent to the
issuance of the notice of deficiency. We note that petitioners
argue on brief that their alternative minimum tax net operating
loss carryback from 1987 to 1984, 1985, and 1986 should be
increased by passive activity losses. Respondent conceded this
before trial.
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