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the 5401-9 S. Broadway property building was used for rental
purposes during 1993.6 He also determined that only 6 percent of
the legal expense was allocable to the portion of the building
used for rental purposes and that the remaining 94 percent had to
be added to petitioners’ basis for the portion of the building
not used for rental purposes.
Respondent also disallowed all the 1992 and 1993 NOL
deductions that petitioners claimed. Among other things,
respondent determined that it had not been established either
that any 1990 and 1991 NOLs were incurred or that the 1990 and
1991 NOLs were available to be carried forward to 1992 and 1993.
Finally, respondent determined that petitioners were liable
for accuracy-related penalties under section 6662 for negligence
with respect to the entire underpayment for 1992 and 1993.
Petitioners’ Various Bankruptcy Proceedings
As previously indicated, on March 18, 1992, petitioners
commenced a proceeding under chapter 11 of the Bankruptcy Code
with the U.S. Bankruptcy Court for the Central District of
California (the Bankruptcy Court). On October 5, 1994, the
6Respondent now concedes that 25 percent of the building was
used for rental purposes by petitioner during 1992 and 1993 and
further agrees that petitioners are entitled to deduct, under
sec. 167, up to 25 percent of the $19,652 of annual depreciation
expense claimed for each year with respect to the building and
improvements.
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