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from White Rim on their 1980-83 Federal income tax returns. On
dates not stated in the record, respondent audited the returns of
White Rim and its limited partners and examined petitioners’
income tax returns for 1980-83.
On June 11, 1984, respondent sent a notice of deficiency to
petitioners in which respondent determined a $39,599 deficiency
for 1980 resulting from respondent’s disallowance of a $79,198
loss related to White Rim. Petitioners timely filed a petition
in this Court.
In 1986, petitioners received a notice of deficiency for
1981. In it, respondent determined a deficiency which resulted
from the disallowance of petitioners’ claimed losses for White
Rim. Except for petitioners’ White Rim deductions, respondent
has never questioned any item on any of petitioners’ tax returns.
2. Petitioners’ Amended Returns for 1981-82
In 1986 and 1987, respondent issued notices of tax due and
filed tax liens for petitioners’ 1981-82 tax liabilities. As a
result, petitioners decided to fully pay their White Rim tax
liabilities in 1987. To accomplish this, they planned to file
amended returns for 1981 and 1982, to refinance their home to
fully pay their 1982 tax liability, and to apply overpayments
totaling about $33,000 from 1985-87 to their 1980-83 liabilities.
Petitioners believed that, as a result of these actions, they
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