- -16
On October 3, 1991, respondent mailed a notice of deficiency
to petitioners for the taxable years 1987, 1988, and 1989.
Respondent determined, regarding the issues still remaining for
decision for the year 1987, that petitioners' income should be
increased by the disallowance of the claimed bad debt deduction
of $70,000. Respondent determined that petitioner realized
forgiveness of indebtedness income in 1987 upon the payment of
the mortgage on the Third Street property in the amount of
$69,815, and since petitioner had fully depreciated the property,
he had unreported ordinary income of $43,318.80; and that the
remaining $26,494 was capital gain income which petitioner failed
to report in 1987.
Respondent determined that petitioner's self-employment
taxes for the years 1987, 1988, and 1989 were in the amounts of
$5,387, $6,205, and $3,234, respectively, based on the amounts of
fees the law partnership paid to him in those years under the
purchase agreement.1
Respondent determined that petitioners were liable for
additions to tax for negligence and substantial understatement of
tax as set forth above for each of the years 1987 and 1988.
1 On brief respondent conceded that $2,235.80, $2,409.30,
and $2,643.33 of the amounts she determined to be self-employment
income represented payments for health insurance of petitioner
and should not have been included in self-employment income.
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