T.P. and Najieh R. Crigler - Page 9




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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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