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The following table compares the adjusted gross income (AGI)
that petitioners would have reported if they had not engaged in
their breeding activity with the AGI that they actually reported
on their Federal income tax returns for 1995 through 2002:
Year AGI without ERE AGI reported
1995 $553,075 $199,175
1996 716,359 428,485
1997 748,293 409,896
1998 688,703 413,584
1999 781,242 440,399
2000 1,003,786 586,239
2001 1,072,126 613,985
2002 886,312 555,856
The losses from ERE allowed petitioners to reduce their
Federal income tax liability by $170,732 for 2000 and $184,507
for 2001.
Notice of Deficiency
Following an examination of petitioners’ Federal income tax
returns for 2000 and 2001, respondent issued a notice of
deficiency in which he determined: (1) Petitioners’ animal
breeding activity in those years was an activity not engaged in
for profit under section 183, and expense deductions claimed with
respect to the breeding activity were disallowed, except as
allowed by section 183(b), and (2) computational adjustments to
petitioners’ itemized deductions were required because of the
preceding adjustments.
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Last modified: March 27, 2008