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taxable interest income. He did not report his $154,000 insider
trading income, $150,000 of which was included in his gross
income by respondent. On his 1988 tax return, petitioner
reported gross income of $17,026.85, his wages from Morgan
Stanley, and he did not report the $50,000 insider trading income
included in his gross income by respondent. For 1988, respondent
allowed petitioner a $125,000 deduction for the disgorgement of
his insider trading income, which resulted in no tax deficiency
for that year. Respondent determined, however, that the
disgorgement deduction was not in connection with a trade or
business and, accordingly, did not generate a 1988 NOL that could
be carried back to 1987. Under respondent’s determination, most
(about $75,000) of the $125,000 disgorgement deduction remained
effectively nondeductible.
On January 25, 1994, petitioner executed a Form 872, Consent
to Extend the Time to Assess Tax, intended to extend the 1987
assessment period to December 31, 1994. The Form 872 was
executed after April 15, 1991, after the normal 3-year period for
assessment under section 6501(a) had expired. The Form 872 was
executed before April 15, 1994, within the 6-year period for
assessment under section 6501(e)(1) (that section applies where
substantial omissions from gross income exist). The Form 872,
however, did not contain any explanation or indication of whether
the period for assessment was then open or under which particular
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