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Monday, March 31, 2003


Tax Court disallowed T.P. AND NAJIEH R. CRIGLER�s claim for a $100,000 deduction under section 1244 for the worthlessness of their stock on FabuGlass. Tax Court laid out in detail the amounts of deductions and gross receipts from operating and nonoperating sources for the 5 tax years prior to the year at issue. They then explain the test that for each of the 5 prior tax years, either the operating receipts must exceed the nonoperating receipts, but that the test does not apply if for the five-year period in question, Chapter 1 deductions exceed the corporation�s gross income. IRS issued valid regs stating that even if the receipts test does not apply, the taxpayer must show that the corporation was �largely an operating company� during the 5 year period. In a fact-based analysis, Tax Court determined that FabuGlass was a nonoperating company. In addition to serious substantive facts, Tax Court was persuaded by FabuGlass tax returns listing its business as an investment company.

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