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Respondent initiated an audit of petitioner’s income tax
returns for 1990 through 1992. The audit was thereafter expanded
to include petitioner’s returns for 1993 and 1994.
By notice of deficiency dated August 29, 1997, respondent
made the following determinations for the taxable years 1993 and
1994:
For 1993, respondent did not determine any deficiency in
income tax, but he did determine an addition to tax under section
6651(a)(1) in the amount of $303 and an accuracy-related penalty
under section 6662(a) in the amount of $756.
For 1994, respondent determined a deficiency in income tax
in the amount of $3,784, an addition to tax under section
6651(a)(1) in the amount of $440, and an accuracy-related penalty
under section 6662(a) in the amount of $785.
Respondent's deficiency determination was based on the
disallowance of losses claimed from the horse activity. Although
respondent disallowed such losses for both 1993 and 1994, no
deficiency in income tax for 1993 resulted therefrom because
respondent allowed a carry forward of the unused portion of a net
operating loss (NOL) from 1990 that was attributable to
petitioner's accounting practice. In contrast, respondent did
not allow a carry forward to either 1993 or 1994 of losses from
the horse activity claimed for 1990, 1991, and 1992. Again,
although respondent disallowed such losses for 1990, 1991, and
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