- 3 -
We hold Mr. Cutts is entitled to deduct amounts paid for
insurance, mortgage interest, real estate taxes, and depreciation
as rental expenses for Landmark Hall in excess of those allowed
in the notice of deficiency, with correlative reductions in
itemized deductions allowed for mortgage interest and real estate
taxes in amounts to be determined in a Rule 155 computation.
2. Whether petitioners are entitled to net debts from Mr.
Cutts to ATV against debts from ATV to Mr. Cutts for purposes of
computing imputed income under section 7872. We hold petitioners
are entitled to net the debts and thereby fix the respective
amounts of dividend and interest income constructively realized
by Mr. Cutts and ATV under section 7872 in smaller amounts than
respondent determined.
3. Whether petitioners are liable for the accuracy-related
penalties under section 6662. We hold petitioners are liable for
the penalties on the portions of the deficiencies attributable to
section 7872.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and attached exhibits are incorporated
herein by this reference. When the petitions were filed in these
cases, Landmark Hall, located at 1005 Government Street, Mobile,
Alabama, served as Mr. Cutts’s residence and ATV’s principal
place of business.
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