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judgment in taxable income, and the record does not establish
that petitioner had any tax basis in the uncollected judgment.
On their 1997 joint Federal income tax return filed with
respondent, petitioners reported as taxable $5,789 of the Social
Security benefits petitioner received in 1997, and petitioners
claimed a $11,068 casualty loss deduction relating to the above
$166,013 uncollected judgment. Petitioners also attached to
their 1997 tax return a statement that they intended to deduct
the balance of the $154,946 uncollected judgment over the course
of the next 15 years –- $11,068 in each year -– as a loss
carryforward under section 172.
For 2003, the year at issue herein, petitioners filed a
joint Federal income tax return, reported thereon $6,604 as the
taxable portion of the Social Security benefits petitioner
received, and claimed the $11,068 loss carryforward mentioned
above relating to petitioner’s 1996 $166,013 uncollected
judgment.
After an audit of petitioners’ 2003 Federal income tax
return, on December 5, 2005, respondent mailed to petitioners a
notice of deficiency reflecting a $437 tax deficiency for 2003
based on a recalculation of the portion of Social Security
disability benefits petitioner received in 2003 that was taxable.
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