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Respondent determined a deficiency of $26,921 in
petitioner's 1995 Federal income tax and a section 6662(a)
penalty of $5,384.20. The parties now agree: (1) Mortgage
interest and property tax claimed on petitioner's Schedule F,
Profit or Loss From Farming, are properly deductible on his
Schedule A, Itemized Deductions, as expenses for a second home,
which, together with other changes respondent made to
petitioner's Schedule A, results in a $22,622 increase of
itemized deductions; (2) petitioner is entitled to a net
operating loss carryover of only $1,146 for the 1995 tax year
rather than the $64,898 claimed by him; (3) petitioner's Schedule
E, Supplemental Income and Loss, rental activities are passive;
and (4) petitioner is not liable for the accuracy-related
penalty.
This Court must decide: (1) Whether petitioner is entitled
to deduct Schedule C expenses which respondent disallowed in the
amounts of $4,633 for meals and entertainment, $6,533 for travel,
and $19,113 for interest; (2) whether petitioner's farm activity
was engaged in for profit during 1995 and, if so, whether it was
a passive activity; and (3) whether petitioner is entitled to a
Schedule E rental loss in the amount of $3,712.
Some of the facts in this case have been stipulated and are
so found. Petitioner resided in Newport Beach, California, at
the time he filed his petition.
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