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adjusted gross income in 1979, 99 percent of his adjusted gross
income in 1980, 100 percent of his adjusted gross income in 1981,
and 92 percent of his taxable income in 1982.21 The percentage of
Merit losses dropped to 56 percent of taxable income during 1983.
His overall profit on T-bill options and stock forwards, after 6
years, was $59,413.
During the years in issue, Ms. Rivera's Merit losses, as a
percentage of income, equaled 108 percent of her taxable income in
1980, 82 percent of her adjusted gross income in 1981, and 40
percent of her taxable income in 1982. Merit losses equaled 51
percent of taxable income during 1983. Her overall profit on T-bill
and T-bond options and stock forwards during the years at issue was
$1,102.
Leema's patterns do not lend themselves to this analysis
because of its use of a subsidiary to engage in trading.
Nevertheless, Merit's trades demonstrate multimillion-dollar losses
which assisted handsomely in eliminating much of the other corporate
income in Leema's consolidated returns.
The trading at issue is plainly tax motivated. Each of
petitioners' trades reveals consistent first-year losses. All
petitioners deliberately incurred these losses either to generate
tax deductions or to create losses that would offset other gains.
The taxable transactions that occur in the first year or first 2
21 At times, petitioners gave effect to their Merit losses
by deducting them instead of by making adjustments to gross
income. In such cases, comparison to taxable income reveals the
tax effect of those losses.
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