Fawzi and Dolores Tay Tay Assaad - Page 9

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               Petitioners’ Federal income tax returns for 1996 and 1997              
          were filed on October 20, 1997, and January 6, 2000,                        
          respectively.  Mr. Assaad could not offer any explanation as to             
          why the 1997 return was filed untimely.  Respondent audited                 
          petitioners’ 1996 return.11  On July 16 or 17, 1998, respondent             
          mailed to petitioners an audit appointment letter with respect to           
          their 1996 taxable year.  The record does not reflect when                  
          respondent commenced an examination regarding petitioners’ 1997             
          taxable year.                                                               
               In computing the NOL carryforward from 1992, respondent                
          determined that petitioners should have reported foreclosure                
          income of $2,052,385 with respect to 15 Isabella in addition to             
          the $448,608 gross profit that they reported on their 1992                  
          return.  He made no adjustments to the $2,226,664 cost of goods             
          sold that petitioners reported.  Respondent revised petitioners’            
          income from the real estate development business to $2,500,993.             
          He disallowed $369,023 of the expenses that petitioners claimed             
          on their 1992 Schedule C, but he allowed $915,002 of additional             
          expenses not originally shown on petitioners’ 1992 return.                  


               11Respondent previously audited petitioners’ 1992, 1993,               
          1994, and 1995 tax returns.  Respondent disallowed the NOL                  
          carryforward deductions for 1993, 1994, and 1995.  However,                 
          petitioners petitioned the Tax Court.  Respondent represents that           
          he “settled the Tax Court case for no deficiency on the basis               
          that some net operating loss existed and to the extent it                   
          existed, it was sufficient to eliminate all of the petitioners’             
          income and income tax liability for those years.”                           





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