- 7 -
they were planning to purchase replacement property within the
replacement period.
ESI's 1994 tax return shows a net operating loss (NOL)
carryover generated for 1993 in the amount of $120,990: $87,443
of the carryover was utilized in 19904; leaving $33,547 available
for carryover to 1994. The $33,547 NOL was used in 1994 to
offset taxable income of $19,465. ESI's 1995 tax return shows an
available NOL carryover of $14,217, used to offset taxable income
of $21,587. After application of the NOL, ESI's 1994 and 1995
taxable income was zero and $7,370, respectively. ISC's 1994 and
1995 tax returns show no NOL carryover, $195,462 and $21,182 in
taxable income, respectively, and $59,480 and $3,177 in total tax
due, respectively.
On September 27, 1996, respondent issued a notice of
deficiency which determined, among other things, that the fair
market value of decedent's shares in ESI and ISC was $328,294 and
$365,419, respectively, rather than the $264,398 and $330,491
shown on the estate tax return. The primary difference between
respondent's determined value and the estate's returned value
stems from respondent's disallowance of the built-in capital
gains discount.5
4 This data indicates that ESI either had losses or broke
even in 1992 and 1993.
5 Respondent's determined value also reflects an increase
(continued...)
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