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that petitioners must include the gain attributable to GIA’s
contracts for deed, the excess of sales price over basis, in
their gross income for the respective years of the agreements’
execution.
III. Reduction of Net Operating Loss Carryovers
Section 172(a) authorizes a net operating loss deduction.
Essentially, a net operating loss is the excess of deductions
over gross income, with enumerated modifications. See sec.
172(c) and (d). The net operating loss so determined may be
carried back to the 3 preceding taxable years and carried forward
to the 15 succeeding years, until absorbed by taxable income.
See sec. 172(b).
On their returns for 1993 through 1995, petitioners claimed
deductions for net operating loss carryovers from prior years.
In the notice of deficiency, respondent disallowed a portion of
the amount claimed for 1993 and the full amount for years 1994
and 1995. Respondent argues that the net operating loss
carryovers were overstated and should be allowed only to the
extent the underlying losses were incurred and remain unabsorbed
after taking into account certain adjustments.
Two primary adjustments are referenced in the parties’
stipulations and briefs. First, both parties are apparently in
agreement that the net operating loss carryovers should be
increased to reflect the insurance commissions and mortgage
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