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$3,600. On Schedule K, Partner's Shares of Income, Credits,
Deductions, etc., of its Form 1065, the law partnership reflected
the real estate activities income as a separate distributive
share item. Forms 1065 for Mr. Moosbrugger, Mr. Ohlsen, Ms.
Dvorak, and Mr. Carter reflected 25 percent of the income from
the real estate activity for each of them. The law partnership
reported depreciation in the amount of $4,564 related to
nonresidential real property purchased in January 1988 for
$150,000. No rental expenses were claimed.
On Schedule E of his 1988 Federal income tax return, Mr.
Moosbrugger reported rental income in the amount of $3,822
related to the commercial building. He also deducted interest in
the amount of $3,115 and taxes in the amount of $1,170. Mr.
Moosbrugger claimed no depreciation expense.
Even though Mr. Ohlsen, Mr. Dvorak, and Mr. Carter were
partners of the law firm in 1986, they were not reflected as the
insured parties on the insurance policy covering the building at
that time. The loss payees on the building as of June 1987 shown
on the insurance policy were Mr. Mack, Mr. Moosbrugger, and Mr.
Leonard. These were the same loss payees shown on the policy in
July 1978. In July 1987, the loss payees listed on the insurance
policy on the Third Street property were changed to Mr.
Moosbrugger, Mr. Ohlsen, Ms. Dvorak, and Mr. Carter.
Petitioners claimed a business bad debt loss in the amount
of $70,000 on their 1987 Federal income tax return. The return
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