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country. His spouse, petitioner Claire L. Pace, was not employed
outside the home during 1981. Petitioner Edgar P. Berry was a
surgeon during 1981. His spouse, petitioner Dorothy M. Berry
(petitioner Berry), was employed at Edgar Berry's professional
corporation (Edgar P. Berry, MD PC) and also served as president
of the auxiliary chapter of the American Medical Association
during 1981.
On their 1981 Federal income tax return, petitioners Pace
reported gross income from wages, interest, dividends, and
farming in the amount of $306,597, less $3,000 in capital losses,
and $53,792 in losses from partnerships, trusts, etc., including
losses here in issue. Petitioners Berry reported on their 1981
Federal income tax return gross income from wages, interest,
dividends, and other sources in the amount of $206,038, less
$34,637 in losses from rents, partnerships, trusts, etc.,
including losses here in issue. Consequently, in the absence of
significant deductions or credits, petitioners in each case were
subject to payment of Federal income taxes in substantial amounts
for taxable year 1981.
During the summer of 1981, petitioners Pace and Berry each
acquired a 3.094-percent limited partnership interest in Hyannis
Recycling Associates (Hyannis) for an investment of $25,000 each.
As a result of the passthrough from Hyannis, on their respective
1981 Federal income tax returns petitioners each deducted an
operating loss in the amount of $20,327 and claimed investment
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