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1989 59,454
Neither petitioner nor Carlton maintained formal records of
Fruitland's financial affairs. Although the partnership owned a
cash register, it was not systematically used to reflect
Fruitland's sales activity. Reports of daily revenues were not
maintained. Invoices reflecting Fruitland's purchases were
informally collected in paper bags.
For each year at issue, a professional accountant prepared
both Fruitland's Federal partnership returns and petitioners'
Federal income tax returns. In computing Fruitland's gross
receipts for a given taxable year, the accountant applied a gross
markup rate to Fruitland's cost of goods sold. The accountant
determined cost of goods sold from receipts provided by
petitioner. These were the same receipts petitioner claims to
have accumulated in paper bags.
On their Schedule E for each taxable year at issue,
petitioners reported the following distributive share amounts:
Item 1987 1988 1989
Ordinary income from
business activity $6,748 $7,281 $5,360
Guaranteed payment 33,800 36,800 34,500
Total 40,548 44,081 39,860
Schedule K-1 of Fruitland's Federal partnership returns lists the
following amounts as having been allocated to Carlton with
respect to each taxable year at issue:
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Last modified: May 25, 2011