- 6 -
of $12,673 constituted ordinary income.
Finally, on their 1993 return, petitioner and Mr. Gurr
claimed a $158,841 net operating loss carryover from 1992. That
carryover loss claimed on the 1993 return was disallowed in the
notices of deficiency because the adjustments to the 1992 tax
return fully eliminated any carryover loss to 1993.
As a result of the adjustments to the 1993 return,
respondent determined that $3,936 in Social Security benefits
received by petitioner and Mr. Gurr constituted taxable income.
Petitioner was not involved in keeping the books and records
for the real estate activity. However, she was familiar with the
manner in which Mr. Gurr maintained his records. His system of
record keeping was simply retaining receipts and other documents
accumulated over the year, which he gathered up at the end of
each year and took to their accountant to be sorted out for
income tax purposes. Petitioner knew, however, that Mr. Gurr's
system of record keeping was deficient in many respects, as
evidenced by the fact that substantially all the adjustments in
the notices of deficiency were based upon the failure to
substantiate the amounts claimed on their joint returns as
capital gain losses and the failure to substantiate the character
of their reported capital gains. At trial, petitioner testified:
"The whole reason we are here today is because of Keith Gurr's
poor record keeping." That testimony was corroborated by
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