Evert E. and Eva F. Berglund - Page 7

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            decision.  On May 8, 1991, the U.S. District Court for the                                  
            Central District of Illinois affirmed the bankruptcy court's                                
            decision.  Petitioner and his spouse appealed the decision of the                           
            District Court to the U.S. Court of Appeals for the Seventh                                 
            Circuit, and their appeal was dismissed with prejudice by order                             
            dated February 4, 1993.                                                                     
                  In a statement dated April 28, 1989, attached to petitioner                           
            and his spouse's joint Federal income tax returns for 1986, 1987,                           
            and 1988, petitioner and his spouse wrote that they had been the                            
            owners of 1,120 acres of farmland in Illinois and 1,342 acres of                            
            farmland in Indiana and that "The [First National] Bank has sold                            
            our equipment and our Illinois buildings and all but 384 acres of                           
            Illinois land against our wishes."                                                          
                  In a statutory notice of deficiency dated September 16,                               
            1991, respondent determined, inter alia, that petitioner and his                            
            spouse had sold approximately 652 acres of farmland in 1986.                                
            According to respondent's computation, the amount realized on the                           
            sale was $716,235 and their adjusted basis was $199,101,                                    
            resulting in a long-term capital gain deduction of $310,280.40.                             
            Ultimately, respondent increased their long-term capital gains by                           
            $206,853.60 for 1986.                                                                       
                  Subsequent to the issuance of the statutory notice of                                 
            deficiency and the filing of the petition in this case,                                     
            respondent verified that:  (1) A portion of the proceeds from the                           
            sale of the farmland in 1986, totaling $147,624.52, was applied                             




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