FRGC Investment, LLC, James P. Mehen, Tax Matters Partner - Page 10




                                       - 10 -                                         
                                       OPINION                                        
               Respondent argues that FRGC did not sustain a deductible               
          abandonment loss in 1997 and that all expenses claimed in 1997              
          and 1998 were capital in nature and are therefore not currently             
          deductible.  Petitioner acknowledges that a large percentage of             
          the 1997 expenditures were nondeductible capital expenditures at            
          the time they were made.  However, petitioner argues that the               
          expenses became deductible when the failure to obtain the                   
          requisite zoning changes resulted in cancellation of the 1996               
          purchase agreement.  At trial, petitioner limited his arguments             
          with respect to allowable deductions for 1997 to whether FRGC               
          sustained an abandonment loss.                                              
               Petitioner also argues that the burden of proof should be              
          shifted to respondent in accordance with the provisions of                  
          section 7491.  We need not decide whether the conditions of                 
          section 7491 have been met by petitioner in this case, however,             
          as the resolution of these issues does not depend on which party            
          has the burden of proof.  We resolve these issues on the basis of           
          a preponderance of the evidence in the record, giving more weight           
          to objective events than to subjective characterizations of                 
          intent.                                                                     
          Abandonment Loss                                                            
               FRGC incurred expenses totaling $669,126 in 1997 in                    
          connection with its attempt to acquire suitable property for                






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