Walter J. & Virginia L. Ward, et al. - Page 3




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               Great Northern Development Co. Trust (GND), Daniel A.                  
          Carvalho, Trustee:                                                          
                                                  Penalty                             
                    Year         Deficiency        Sec. 6662(a)                       
                    1996      $110,123            $20,025                             
                    1997      138,529             27,706                              
               Worldwide Travelers Trust (WT), Daniel A. Carvalho, Trustee:           
                                                 Penalty                             
                    Year         Deficiency        Sec. 6662(a)                       
                    1996      $102,685            $20,537                             
                    1997      138,394          27,679                                 
               Golden Nugget Investments Co. Trust (GNI), Daniel A.                   
          Carvalho, Trustee:                                                          
                                                  Penalty                             
                    Year         Deficiency        Sec. 6662(a)                       
                    1996      $78,013             $82,873                             
                    1997      15,603              16,575                              

          Background                                                                  
               In the Wards’ notice of deficiency, respondent determined:             
          (1) The amount the Wards could claim for their exemptions in 1996           
          and 1997 was reduced to zero because of the amount of their                 
          income; (2) the Wards’ itemized deductions for 1996 and 1997 were           
          decreased by $38,043 and $25,096, respectively, because they                
          failed to establish that $24,783 for 1996 and $12,285 for 1997              
          were losses sustained by them and because their itemized                    
          deductions were limited because of the amount of their adjusted             
          gross income; (3) the Wards’ Schedule C, Profit or Loss From                




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