- 64 -
total management fee due under the management contract. This
amount was recommended by Fred. As with the MIT 83 check for
$363,000, the MIT 84 check passed around in a circle to MIT 84,
its maker.
Under its cash method of accounting, MIT 84 claimed a net
loss of $3,035,000. This was the excess of the $4,194,361
payroll costs over reported partnership income of $1,159,361.18
On their individual income tax returns for 1984, the 21
investors in MIT 84 reported Schedule E partnership losses from
MIT 84 in proportion to their interests in the partnership.
Respondent issued to MIT 84 a notice of final partnership
administrative adjustment in which respondent disallowed the
entire claimed MIT 84 partnership loss of $3,035,000 for the year
1984.
The employee leasing agreement required Machise to pay a
compensation fee to MIT 84 of 120 percent of the payroll costs.
This was a 5-percent increase in the compensation fees charged by
earlier partnerships. Once again, however, this payment could be
deferred for 11 years, until July 1, 1995, for a 10-percent
annual late charge.
18MIT 84 took into income, as compensation fees, $1,112,394
to reflect that it had received more in advances from Machise
than it had lent to Machise. The other income reported by MIT 84
for 1984 consisted of interest income of $46,967. Some $45,525
of the latter amount represented interest paid by BBPA based upon
its use of the investors' cash under the line-of-credit note.
This interest income was exactly offset by MIT 84's claimed
payment of a $45,525 professional fee to BBPA.
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