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petitioner claimed various deductions relating to State and local
income taxes, an NOL carryover, a long-term capital loss
carryover, suspended passive activity losses relating to the
Peach Tree Property, legal fees relating to Belmont Gardens, and
the worthlessness of the Dejanu loan.
On audit, respondent disallowed the claimed deductions
primarily on the grounds of lack of substantiation, as set forth
below:
Amount Amount
Claimed by Allowed by
Nature of Deduction Claimed Petitioner Respondent
State and local income taxes $ 17,385 $3,532
NOL carryforward from 1996 25,990 0
Long-term capital loss carryforward1 206,881 0
Suspended passive activity losses 35,289 0
Legal fees relating to Belmont Gardens 40,466 0
Worthless Dejanu loan2 15,000 0
1From prior years, petitioner claimed a long-term capital loss carryforward
into 1997 of $206,881, of which $88,430 was used to offset in full a net long-term
capital gain for 1997, $3,000 was claimed as a long-term capital loss for 1997, and
the $115,451 balance was reported as a long-term capital loss carryforward to 1998.
2On his 1997 individual Federal income tax return, petitioner claimed a
business bad debt relating to the Dejanu loan on schedule C, Profit or Loss From
Business. Petitioner now concedes that the loan should be treated as a nonbusiness
bad debt and reported as a short-term capital loss in 1997, the alleged year of
worthlessness.
Respondent disallowed the deduction for the Dejanu loan
because respondent determined that the loan became worthless in
1995, not 1997.
Respondent also determined that petitioner was liable under
section 6651(a) for an addition to tax for failure to timely file
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