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Petitioners suffered a net loss for each year from 1985
through 1997 attributable to their jet charter activity. During
the relevant years, BHJ had the following gross income, net loss
and net cash flow:
Net Income
Year Gross Income (Loss) Net Cash Flow
1993 $580,340 ($743,485) ($547,984)
1994 545,941 (685,719) (485,423)
1995 447,524 (775,618) (574,585)
1996 527,298 (521,076) (397,924)
1997 273,704 (214,126) (208,938)
Repairs and maintenance were the major expenses during the
relevant years.
Mr. Rabinowitz was constantly trying to improve the jet
charter activity and remained focused on increasing the bottom
line of the combined entities. Although BHJ did not generate a
profit, Mr. Rabinowitz was pleased with the jet charter activity
because of the benefits to CFI. Mr. Rabinowitz continued trying
to improve BHJ’s operations as well.
Sale of CFI and Termination of the Jet Charter Activity
In April 1997, petitioners decided to sell the Falcon for
$4.35 million and terminated their jet charter activity.
Petitioners also decided to sell CFI. They ultimately sold it to
a larger company in August 2000 in exchange for stock.
Deductions at Issue
Petitioners filed joint tax returns for each of the relevant
years and deducted losses attributable to the jet charter
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