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Background
The Holloways’ claim to a tax credit is an indirect one. In
2002, Danny Holloway owned 100 percent of Holloway, Inc., an S
Corporation. Holloway, Inc. was in turn a member of a limited
liability company named Mopass V. In 2002, Mopass reported a
“Section 29 Tax Credit”1 of $34,500 on the Schedule K-1 that it
sent to Holloway, Inc. Holloway, Inc. then reported the credit
as an “Enhanced Oil Recovery Credit” under section 43 on the
schedule K-1 that it sent to Danny Holloway.2 The Holloways
timely filed their 2002 joint tax return, and claimed not only
the full $34,500 credit under section 29 or 43 from Mopass via
Holloway, Inc., but also an adoption credit under section 23.
The IRS first sent the Holloways a math error notice,
claiming the Holloways miscalculated the amount of their section
29 or 43 credit.3 Unlike a notice of deficiency, a math error
1 All section references are to the Internal Revenue Code in
effect for the 2002 tax year. The Code’s sec. on tax credits and
the alternative minimum tax are among the most often revised, and
the “credit for producing fuel from a nonconventional source” was
moved from section 29 to section 45K by the Energy Policy Act of
2005, Pub. L. 109-58, sec. 1322(a)(1), 119 Stat. 594, 1011
(effective Aug. 8, 2005).
2 The enhanced oil recovery credit is allowed (in 2002 as
today) by section 43. Neither party explained how Mopass’s
section 29 credit metamorphosed into a section 43 credit by the
time it reached the Holloways, but as we explain below, the
amount of the allowable credit is the same regardless of the
section it’s claimed under.
3 The Commissioner sends a math error notice when he finds
(continued...)
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Last modified: May 25, 2011