-9-
investors through illegal acts, including mail fraud and money
laundering (promotion and concealment) on October 18, 1994. He is
presently serving a 6-1/2 year prison sentence.
At the time of trial herein, petitioners had recovered
approximately $25,000 out of their total $375,000 investment with
Pioneer Mortgage.
Forms 1099
In 1991, Pioneer Service Co. (the trustee in bankruptcy)
issued to petitioners two Forms 1099-INT, in the amounts of
$12,833.37 and $33,416.10,6 with regard to the payments labeled
"interest" on the CMO loan and the remaining loans, respectively.
Petitioners’ 1990 Federal Income Tax Return
Petitioners’ accountant, Kenneth B. Healey, prepared
petitioners' 1990 Federal income tax return. Because of the
document matching program that the Internal Revenue Service
employed, Mr. Healey determined that petitioners should report as
interest income the amount ($46,2497) reported on the two Forms
1099-INT from Pioneer Service Co. and wash that amount out by
claiming $46,249 as negative income on line 22 (Other income) of
their 1990 Form 1040.
6 The parties acknowledge that this amount is $1,853.50
more than the $44,396 petitioners actually received from Pioneer
Mortgage in 1990.
7 The $46,249 comprises the sum total of the amounts
reported on the Forms 1099-INT issued to petitioners for 1990.
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