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by KBS show petitioner and his two associates as equal one-third
shareholders.3 Petitioner actively participated in the
management of each of the entities and signed their tax returns.
Petitioners' Federal income tax returns for the years at
issue were prepared by Edward Leuschner (Leuschner). Leuschner
has been a certified public accountant since 1964. Tax return
preparation constitutes half of his practice. Leuschner prepared
petitioners' returns on the basis of information provided by
petitioner, including Schedules K-1 and worksheets prepared by
petitioner showing the results of his securities transactions
during the year.
Petitioner had net losses from his investments in S
corporations and partnerships for each of the years at issue.
The largest losses for 1987 and 1988 arose from the motel and
restaurant businesses reported on the Schedules K-1 issued by KBS
and KRS. Leuschner advised petitioner that he had sufficient
basis and amount at risk to deduct fully his distributive share
of loss from each of the entities for each year. With respect
to the losses reported by KBS and KRS in particular, Leuschner
3Whether the tax returns of CIJV, HIJV, and KBS accurately
reflect the actual ownership relationships among these entities
and petitioner is disputed by the parties. Petitioners contend
that the tax returns are inaccurate. Respondent takes the
position that this question is subject to resolution in a TEFRA
partnership-level proceeding and thus not properly before this
Court. There is no dispute, however, that the Schedules K-1 used
to prepare petitioners' returns were based on the ownership
structures reflected on the entities' returns.
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