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state. On December 1, 1995, BERM was administratively dissolved,
by operation of law, for the failure to file the annual report
due July 1, 1995, and pay an annual franchise tax. See 805 Ill.
Comp. Stat. 5/12.35 (West 1991); 805 Ill. Comp. Stat. 5/12.40
(West 1986).
Petitioner reported the restaurant’s operating losses of
$54,819 on his individual Schedule C, Profit or Loss From
Business, and abandonment losses4 of $44,184 on Form 4797, Sales
of Business Property, for taxable year 1995.
In a notice of deficiency respondent determined that
petitioner was not entitled to deduct the business operating and
abandonment losses, resulting in a tax liability of $17,223.
Respondent also determined a penalty of $3,445 pursuant to
section 6662(a). However, in the notice of deficiency respondent
determined petitioner incurred a capital loss of $141,358 from
his investment in BERM and allowed petitioner a deduction
therefor of $3,000 pursuant to sections 165(g) and 1211(b).
Discussion
The first issue for decision is whether petitioner operated
the restaurant business at the Holiday Inn as a sole
proprietorship or a corporation during 1995. Asked differently,
4 Petitioner’s reported abandonment losses are with
respect to equipment and leasehold improvements that were
abandoned when the restaurant ceased doing business in April
1995.
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