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Therefore, your taxable income for 1994 is increased by
$17,238.
Passive losses as corrected:
Loss from Schedule E, Property A, Part I $1,670
Loss from Schedule E, Part II 16,445
Total corrected passive losses 18,115
Allowable passive income:
Profit from Schedule E, Property C, Part I 877
Unallowable loss 17,238
On June 21, 1993, Dr. Schwalbach paid $16,050 for a 5/6
interest in 6,000 shares of stock in a corporation named
Impression Delivery Corp. (Impression); the total purchase price
was $19,266. Approximately 3 weeks later, the 6,000 shares were
sold for $7,374, and 6 days after the sale, Dr. Schwalbach
purchased an interest in another 4,100 shares of Impression.
Petitioners did not recognize a loss in 1993 on the sale of the
stock because the C.P.A. considered the purchase-sale-purchase as
a "wash sale" under section 1091. In 1994, petitioners, upon the
advice of the C.P.A., reported a short-term capital loss of
$16,050 on their 1994 Schedule D, Capital Gains and Losses, with
respect to Impression's stock. The C.P.A. rendered his advice
after ascertaining that Impression had ceased operations and was
facing litigation over allegedly fraudulent practices.
Respondent disallowed the $16,050 loss reported by
petitioners. According to the notice of deficiency, "It has not
been established that the company known as Impression Delivery
Corp. was insolvent or out of business in the year 1994.
Further, it has not been established that you had an adjusted
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