James R. and Myrtice L. Peacock - Page 11

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          They also received loan repayments from PMSI of $240,590 in 1995            
          and $60,815 in 1996.                                                        
               Petitioners’ individual income tax return for 1997 was due             
          on October 15, 1998.  The return was prepared in March 1999 and             
          filed on May 13, 1999.                                                      
               A shareholder in an S corporation must take into account his           
          or her pro rata share of the corporation’s income or loss.  Sec.            
          1366(a).  PMSI is a subchapter S corporation, and Ms. Peacock is            
          its only shareholder.  We must determine the extent of PMSI’s               
          deductions for its fishing activity that enter into the                     
          computation of its income or loss.  Respondent denied some of               
          those deductions, determining that the fishing activity was not             
          engaged in for profit.  Respondent also determined that                     
          petitioners could not deduct the claimed bad debt and that they             
          were liable for the addition to tax and the accuracy-related                
          penalties mentioned above.                                                  
               Petitioners have not argued that either section 7491(a) or             
          (c) applies to this case.  Moreover, the record does not indicate           
          that respondent’s examination of the subject years commenced                
          after July 22, 1998.  Seeing that section 7491 applies only to              
          court proceedings arising from examinations commencing after                
          July 22, 1998, Internal Revenue Service Restructuring and Reform            
          Act of 1998, Pub. L. 105-206, sec. 3001(c), 112 Stat. 727, we               

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