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Petitioner Jerome G. Beery (Mr. Beery) has a Ph.D. in physics,
and petitioner Joyce E. Beery has a master’s degree in speech
pathology.
On January 16, 1976, Mr. Beery filed a chapter 11 petition
in the U.S. Bankruptcy Court for the District of Kansas (the
Kansas bankruptcy), which was converted to a chapter 7
liquidation. On September 29, 1987, the bankruptcy trustee filed
Forms 1041, U.S. Fiduciary Income Tax Return, for 1976, 1977,
1978, 1979, 1980, 1982, 1983, 1984, 1985, and 1986. On the 1976
and 1977 returns, the bankruptcy trustee deducted net operating
losses (NOLs) in the respective amounts of $549,077 and $871,966
that were carried forward from 1975 (the 1975 NOL) and 1976 (the
1976 NOL). The NOLs from 1975 and 1976 were used fully by the
bankruptcy estate in the years 1977 through 1985.
On March 8, 1993, the bankruptcy trustee filed Forms 1041
for the years 1989, 1990, 1991, and 1992. The bankruptcy trustee
did not deduct NOLs on any of these returns.
On December 2, 1993, the U.S. Bankruptcy Court issued an
Order Approving Account, Discharging Trustee, and Closing Estate
in the Kansas bankruptcy. On February 25, 1994, Mr. Beery filed
a chapter 7 petition in the U.S. Bankruptcy Court for the
District of New Mexico (the New Mexico bankruptcy). The New
Mexico bankruptcy was still pending as of March 10, 2003.
Although the Kansas bankruptcy trustee had already claimed a
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