Tax Court in Brief | Villanueva v. Comm’r | Net Operating Losses and Carry Forward

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The Tax Court in Brief – March 28th – April 1st, 2022

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation:  The Week of March 28, 2022, through April 1, 2022

Villanueva v. Comm’r, T.C. Memo. 2022-27 | March 31, 2022 |Goeke, J. | Dkt. No. 19781-18

Short Summary: Villanueva reported a loss of $112,375 on Form 4797, Sales of Business Property, attached to his 2013 return, from the disposition of a condominium. He reported a date of loss as August 5, 2013, although a mortgage lender had foreclosed on the condo in May 2009 and Villanueva lost possession of the condominium on that date. The IRS disallowed the reported loss in full.

Primary Holdings: 

Key Points of Law:

Insights:  Deductions are a matter of legislative grace. Taxpayers are entitled to deduct losses sustained during the taxable year that were not compensated for by insurance or otherwise. Taxpayers must substantiate that the loss is attributable to a trade or business or in a profit-motive endeavor, and adequate documentation must be maintained to evidence the applicable loss. The Code and Treasury Regulations have mechanisms for carrying forward and reporting net operating losses. However, the taxpayer must be prepared to submit a concise statement setting forth the amount of the net operating loss deduction claimed and all material and pertinent facts relative thereto, including a detailed schedule showing the computation of the loss deduction. See Treas. Reg. § 1.172-1(c).

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