- 37 -
Consequently, the effect of section 172(d)(2)(A) is that net
capital losses are excluded from the NOL computation. See, e.g.,
Parekh v. Commissioner, T.C. Memo. 1998-151. In Merlo v.
Commissioner, supra, we stated in pertinent part:
For AMT purposes, section 56(a)(4) provides that
an ATNOL deduction shall be allowed in lieu of an NOL
deduction under section 172. An ATNOL deduction is
defined as the NOL deduction allowable under section
172 and is computed by taking into consideration all
the adjustments to taxable income under sections 56 and
58 and all the preference items under section 57 (but
only to the extent that the preference items increased
the NOL for the year for regular tax purposes). Sec.
56(d)(1).
Petitioner’s net regular capital loss is excluded
from computing his NOL deduction. See sec. 172(c),
(d)(2)(A); sec. 1.172-3(a)(2), Income Tax Regs. For
AMT purposes, petitioner’s ATNOL is the same as his
NOL, taking into consideration all the adjustments to
his taxable income under sections 56, 57, and 58. See
sec. 56(a)(4), (d)(1). No adjustments under those
sections modify the exclusion of net capital losses
from the NOL computation under section 172(d)(2)(A).
Therefore, petitioner’s AMT capital loss is excluded
for purposes of calculating his ATNOL deduction. As a
result, petitioner’s AMT capital loss realized in 2001
does not create an ATNOL that can be carried back to
2000 under sections 56 and 172(b).
Merlo v. Commissioner, supra at 212-213 (fn. ref. omitted).
Consistent with Merlo v. Commissioner, supra, we hold
petitioners may not claim an ATNOL carryback to reduce their AMTI
for 2000. See Spitz v. Commissioner, supra.
VII. Whether Petitioners Are Liable for a Substantial
Understatement Penalty Under Section 6662(b)(2)
Respondent determined petitioners are liable for a
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