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Petitioner’s individual Federal income tax returns for 1992
through 1995 were prepared based on the accrual method of
accounting.
On April 16, 1996, petitioner filed his individual Federal
income tax return for 1995 on which there was claimed an ordinary
business bad debt deduction in the amount of $3,207,578, based on
the claimed balance due from Blackland as of December 31, 1995,
with respect to the purported loans petitioner had made to
Blackland (computed as $2,979,568 in principal and $228,010 in
accrued interest). The bad debt deduction claimed by petitioner
for 1995 did not take into account the $600,000 that petitioner
appears to have withdrawn from Blackland in March of 1996, just
days before the filing of petitioner’s 1995 individual Federal
income tax return.
Due mostly to the above-claimed bad debt deduction,
petitioner’s individual Federal income tax return for 1995
reflected a $3,267,334 net operating loss.
On October 15, 1996, petitioner filed an amended individual
Federal income tax return for 1992 on which petitioner reflected
a carryback of the above-claimed 1995 net operating loss.3
Petitioner’s amended income tax return for 1992 reflected a
3 Previously, in 1995, petitioner had filed an amended
individual Federal income tax return for 1992 to carry back a net
operating loss reflected on petitioner’s 1994 individual Federal
income tax return.
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