Herman N. and Veronica Welter - Page 2

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                       MEMORANDUM FINDINGS OF FACT AND OPINION                        
               HALPERN, Judge:  By notice of deficiency dated January 22,             
          2001 (the notice of deficiency), respondent determined                      
          deficiencies in, and penalties with respect to, petitioners’                
          Federal income tax as follows:                                              
                                             Penalty                                  
                    Year      Deficiency     (Sec. 6662(a))                           
                    1994      $25,310        $5,062.00                                
                    1995      3,749               -0-                                 
                    1996      19,408         3,881.60                                 
          Petitioners timely filed a petition for redetermination.  The               
          issues for decision are whether petitioners:  (1) Properly                  
          characterized gains and losses (i.e., as ordinary rather than               
          capital) attributable to petitioner Herman Welter’s commodities             
          trading activities during the years at issue and (2) are liable             
          for the penalties determined by respondent.1                                
               Unless otherwise noted, all section references are to the              
          Internal Revenue Code in effect for the years at issue, and all             
          Rule references are to the Tax Court Rules of Practice and                  
          Procedure.                                                                  



               1  The parties stipulated that petitioners improperly                  
          omitted from income in 1995 and 1996 amounts attributable to a              
          sec. 481 adjustment resulting from a prior audit.  The parties              
          further stipulated:  (1) Petitioners are entitled to increased              
          standard deductions for 1995 and 1996, and (2) respondent’s                 
          adjustments relating to a net operating loss deduction for 1995,            
          self-employment income for 1995 and 1996, and Social Security               
          benefits for 1994, 1995, and 1996 are computational.  We need not           
          further discuss those issues.                                               




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