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On their 1995 return, petitioners reported a $405,238 loss
attributable to petitioner’s FabuGlass stock and claimed a
$100,000 deduction2 under section 1244.
The examination of petitioners’ 1995 income tax return began
in 1997. Respondent issued a notice of deficiency on February
18, 1999, in which respondent determined that petitioners were
not entitled to a $100,000 deduction under section 1244.
On November 8, 1999, petitioner prepared and filed a second
amended return for 1994 for FabuGlass. On it, FabuGlass reported
that its business activity was the manufacture of “Co-Production
Transp. Products” and that its product or service was “vehicle
conversions w/ R.P.” Also on that return, FabuGlass reported
(for the first time) (1) income of $22,312 from the sale of
boats, costs of goods sold of $31,643, and expenses of $16,070
for travel to Russia, and (2) total assets of $139,325,
consisting of $134,710 of inventories (2 boats), $1,540 of export
items consigned to Russia, and $3,075 of investments.
Sawyer prepared petitioners’ individual income tax returns
for 1990-96, but not FabuGlass’ return for 1996.
FabuGlass reported on its 1996 and 1997 returns that its
business activity was consulting.
2 The maximum annual amount that may be deducted under sec.
1244 is $100,000 for a husband and wife filing a joint return for
that year. Sec. 1244(b).
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