- 37 -
West Polo. Litigation ensued between Towers Construction and Key
West Polo over the validity of the claim of lien as well as other
matters relating to the construction contract. The litigation
was not concluded until 1992.27
On its 1990 Form 1120S, Income Tax Return for an S
Corporation, Towers Construction deducted $460,000 relating to
the letter of credit payment as part of cost of goods sold,
giving rise to a reported 1990 net operating loss for Towers
Construction. Briggs and the Morrises filed amended 1987
individual income tax returns, each claiming net operating loss
carryback deductions arising from the pass-through of the claimed
1990 Towers Construction net operating loss.
Discussion
Petitioners argue that in 1990 Towers Construction incurred
a loss of $460,000 as a result of CB&T’s payment to Key West Polo
against the letter of credit and that this amount is deductible
pursuant to section 162 as a cost of goods sold because Towers
Construction used the money to pay bills for materials, supplies,
subcontractors, and labor.
Respondent argues that Towers Construction is not entitled
to deduct (and thus petitioners are not entitled to carry back
27 The record indicates that Towers Construction ultimately
lost its lien but does not otherwise establish how this
litigation may have affected any effort by Towers Construction to
recover the $460,000 paid out by CB&T on the letter of credit.
Page: Previous 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 NextLast modified: May 25, 2011