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$95,028. Neither petitioners nor respondent have been able to
locate a copy of the Thompsons’ 1982 tax return. The 3-year
period of limitations under section 6501 expired with no action
by respondent concerning the Thompsons’ 1982 tax return.
1983
The IRS received the Thompsons’ 1983 income tax return on
July 2, 1984. The Thompsons reported no tax liability on that
return; they also reported Kersting interest expense deductions
of $67,620 as well as Bauspar deductions.
1984
Respondent received the Thompsons’ 1984 income tax return in
April 1985. On that return, the Thompsons claimed Kersting
interest expense deductions from two Kersting programs: “Mahaio”
(Mahalo), in the amount of $4,320, and Federated Finance, in the
amount of $3,420. The mortgage interest deduction included in
the return also included interest paid pursuant to the Bauspar
program. The Thompsons paid $2,269 as tax shown on the return to
be owing.
1985
On their 1985 income tax return, the Thompsons reported
itemized deductions of $37,932 and reported adjusted gross income
of $22,507, resulting in zero taxable income. Although the
Thompsons did not claim any Kersting deductions on the return,
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