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loss of $12,279.2 Petitioners claimed the loss of $12,279 on
their Form 1040, U.S. Individual Income Tax Return, as well as a
loss of $1,657,609 based on a sale of securities distributed to
petitioner by Alameda. In addition, petitioners claimed a
$125,000 deduction for legal, accounting, consulting, and
advisory fees. Respondent issued a notice of final partnership
administrative adjustment (FPAA) for Alameda concurrently with
the notice of deficiency. In the FPAA, respondent determined
that Alameda was a sham and that none of the deductions that the
partnership claimed on its partnership return were allowable.
The notice of deficiency issued to petitioners stated the
following:
1. The deduction of $12,279 shown on your 2001 tax
return as your reported share of the loss purportedly
sustained by Alameda Investments, LLC is disallowed
because you have failed to establish (1) that the
purported loss was sustained in any amount by either
you or any entity in which you held an interest, (2)
that the transaction purportedly generating the loss in
question was entered into for profit within the meaning
of I.R.C. section 165(c)(2), or (3) that any portion of
the loss in question is allowable as a deduction under
any other provision of the Internal Revenue Code. You
have also failed to establish that, even if loss was
sustained and would otherwise be deducible, any
deduction relating to the loss is not specifically
limited or disallowed by any provision of the Internal
Revenue Code, including without limitation §§ 165, 212,
704(d), or 465.
2Although petitioner’s Schedule K-1, Partner’s Share of
Income, Credits, Deductions, etc., identifies her as the 99-
percent partner for part of the year, her share in the profits
and losses is listed as 100 percent.
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Last modified: November 10, 2007