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carryback, in the income-averaging computation for the 1998 tax,
respondent contends that the taxable income of petitioners for
1995 should be a negative $5,000, representing the dependency
exemptions claimed for 1995 that were not allowed as part of the
NOL. Instead, petitioners claimed on Schedule J of their 1998
return negative taxable income of $121,767. The same comparable
figures were used on Schedule J of the 1999 return (which
involved the 1996 carryback year), and respondent argues the same
rule applies for that year as well.9
Although petitioners contend that they relied on the
instructions for Schedule J in listing negative taxable income of
the base years in their income-averaging computations in
connection with the 1998 and 1999 returns, respondent points out
on brief that petitioners failed to do so. The line instructions
on Schedules J for 1998 and 1999, including the references for
the listing of taxable income of base years from Form 1040, U.S.
Individual Income Tax Return, clearly stated that, if taxable
income for a carryback year was negative, for income-averaging
purposes on Schedule J, the taxable income for such years should
be zero. Petitioners, instead, on Schedules J for 1998 and 1999
reported the negative income amounts of the 2 carryback years,
9 In the income-averaging computation for 1999, an
additional adjustment is made to the taxable income of the 1996
base year to further account for the use of the 1996 NOL
carryback to a prior year.
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