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Respondent issued a notice of deficiency on April 1, 1999.
The notice5 (1) disallowed some of the deductions claimed on
Schedule C; (2) determined that petitioner failed to report
dividend and interest income of $95 in 1990, $5,493 in 1991, and
$253 in 1993; and (3) made adjustments to petitioners’ itemized
deductions on Schedule A. As to the itemized deductions on
Schedule A, the notice of deficiency indicated the following:
It is determined that interest expense deduction of
$76,098.00, $84,638.00 and $67,297.00 respectively for the
taxable years ended December 31, 1990, 1991 and 1993 is
allowable instead of $86,128.00, $100,865.00 and $58,292.00
respectively as shown on your tax returns for the taxable
years ended December 31, 1990, 1991 and 1993. Accordingly,
your taxable income is increased $10,030.00 and $16,227.00
for the taxable years ended December 31, 1990 and 1991, and
your taxable income is decreased $9,005.00 for the taxable
year ended December 31, 1993.[6] [Emphasis added.]
Respondent also determined that petitioner was liable for the
accuracy-related penalty pursuant to section 6662(a).
Respondent served petitioners with interrogatories and a
request for production of documents on January 27, 2000.
Petitioners failed to respond to the formal discovery, and
respondent filed motions to compel responses to interrogatories
5 Although the explanation in the notice of deficiency
appears to disallow the claimed investment credit, the notice
does not contain an adjustment to this item.
6 The decrease in income for 1993 is due to a
carryforward of disallowed interest under sec. 163(d) from 1991.
The carryforward amount will be affected by our holding with
respect to 1991 and can be accounted for in the Rule 155
computation.
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