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made an effective election under section 475(f) on the amendment
to petition.
Background
At the time of the filing of the petition, petitioners
resided in Byron, California.
Petitioners filed Forms 1040, U.S. Individual Income Tax
Return, for 1998, 1999, 2000, and 2001. Before the filing of the
amendment to petition, petitioners did not make an election under
section 475(f) (mark-to-market election) which would make the
election applicable to taxable years 1999, 2000, and 2001 (years
in issue). On their 1999 tax return, petitioners reported
$44,004 of capital gain income. On their 2000 tax return,
petitioners reported on the Schedule D, Capital Gains and Losses,
a net short-term capital loss of $313,715 and subtracted from
income $3,000 as a capital loss. On their 2001 tax return,
petitioners reported a net short-term capital loss of $397,079 on
the Schedule D and subtracted from income $3,000 as a capital
loss.
On November 26, 2003, respondent issued to petitioners a
notice of deficiency which determined that petitioners owed a
deficiency of $650,411 and a penalty pursuant to section 6662(a)
of $130,082 for 1999. On the same date, respondent also issued
to petitioners a notice of deficiency which determined that
petitioners owed a deficiency of $1,013,341 and a penalty
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