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the year in issue, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
Petitioners agree with respondent's adjustments relating to
petitioners' 1985 income tax return and do not contest the
additions to tax. The sole issue for decision is whether
petitioners may use income averaging to compute their 1985 tax
liability.
Background
The parties submitted this case fully stipulated pursuant to
Rule 122. At the time the petition was filed, petitioners
resided in Stillwater, New Jersey.
During 1985, Mr. Butcher was a self-employed certified
public accountant. On their 1985 return, petitioners reported a
$68,204 loss relating to JGD Associates, L.P. (JGD Associates).
In 1993, Mr. Butcher pleaded guilty to violating section 7206(1)
(i.e., to willfully subscribing to a 1985 income tax return that
he did not believe to be true and correct as to every material
matter). In his plea, Mr. Butcher admitted that petitioners were
not entitled to the $68,204 deduction.
In January 1994, petitioners filed an amended 1985 return,
on which they increased their total taxable income by $68,204
(i.e., the amount of the disallowed deduction). Petitioners
computed their 1985 tax liability pursuant to the income-
averaging method. This computation was based on the taxable
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Last modified: May 25, 2011