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Petitioner Crescenzo's Deduction of MIT 80 Partnership Loss
On his individual income tax return for 1980, Dr. Crescenzo
reported a Schedule E partnership loss from MIT 80 of $140,472,
representing his 6.25-percent share of the loss purportedly
incurred in 1980 by the MIT 80 partnership. Respondent has
issued a statutory notice of deficiency to Dr. Crescenzo,
disallowing this claimed loss deduction.
Post-1980 Transactions of MIT 80
In 1981, Machise "advanced" $6,509 in cash to MIT 80. MIT
80 then paid a net $2,109.97 in payroll taxes. On its
partnership return for 1981, MIT 80, under its cash method of
accounting, reported a loss of $2,110, which is the net payroll
tax payment, rounded off. In 1981, MIT 80's bank account, which
had been used as the payroll account during 1980, was closed.
MIT 80 billed Machise $2,587,110.96 as its compensation fee
on April 30, 1981, the scheduled payment date. This amount
represented the actual payroll costs of $2,247,551.73 plus the
$2,109.97 net payroll tax paid in 1980, plus $337,449.26--which
represented the 15-percent "override" of the payroll costs
provided for in the employee leasing agreement.7 Machise did not
7There are often minor differences between the amount of
cash paid into the payroll account during the years at issue, the
cash paid out as payroll costs, and the amount of such costs that
form the basis of Machise's compensation fee calculations. The
parties have not always explained these relatively minor
differences, and they are not relevant to our holdings herein.
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