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income amounts petitioners reported for 1982, 1983, and 1984. On
their 1984 return, petitioners reported, but were not entitled
to, a $30,729 loss relating to JGD Associates. The period to
assess a deficiency in petitioners' 1984 Federal income tax has
expired.
Discussion
Respondent contends that, for income-averaging purposes,
petitioners are required to use the correct amount of 1984
taxable income, even though the period for assessing a deficiency
relating to that year has expired. Respondent further contends
that petitioners' 1984 taxable income should be increased by
$30,729 to offset the $30,729 deduction that petitioners were not
entitled to claim. If respondent is allowed to adjust
petitioners' 1984 taxable income, petitioners will not be
eligible for income averaging (i.e., because their "averagable
income" for 1985 will not exceed $3,000). See secs. 1301 and
1302. Petitioners admit they were not entitled to the $30,729
deduction, but they contend that "the Court should apply fairness
and equity" and not permit respondent to adjust their 1984
taxable income.
Petitioners' contention is meritless. A taxpayer who seeks
to compute his tax liability under the income-averaging method,
must use the correct, not merely the reported, taxable income of
each of the 3 preceding years, even if the period for assessing a
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