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Table 4
Source and Application of Funds--1982
Petitioner Respondent Respondent Court's
Sources Reported Def. Notice Brief Findings
Wages $46,943 $46,943 $46,943 $46,943
Interest income 4,187 4,187 4,187 4,187
Seismic fees 700 700 700 700
Capital gains1 8,207 8,207 20,517 20,517
Rental income 15,026 14,318 15,026 15,026
Farm income 7,538 7,538 7,538 7,538
Royalty income2 14,318 10,329 24,647 24,647
Loans –- 32,452 26,500 32,452
Total sources of
funds 96,919 124,674 146,058 152,010
Applications
Expenditures
reflected on
Schedule C 318,112 318,112 318,112 318,062
Reduced by:
depreciation 6,250 6,250 6,250 6,250
write-offs 137,000 –- 137,000 137,000
Net Expenditure
needing funds –- 311,862 174,862 174,812
Purchase of assets –- 132,979 133,008 48,211
Petitioner's draw –- 23,700 23,700 23,700
Total application
of funds –- 489,541 331,570 246,723
Understatement of
income
(applications
minus sources) –- 343,867 185,512 94,713
1 On his 1982 tax return, petitioner reported $8,207 of capital gain on line 13 of
Form 1040. Although he attached a Schedule D to the Form 1040, petitioner did not
provide any underlying amounts on the Schedule D. Sec. 1202(a) as in effect for 1982
allowed a deduction from gross income of 60 percent of the amount of an individual's
net capital gain, but not short-term capital gain. Sec. 1222. By the time of the
trial, and on brief, respondent evidently assumed that all of the reported $8,207
was net capital gain, after the 60-percent deduction, notwithstanding that
petitioner showed the $8,207 on the Schedule D as short-term capital gain. Burns
testified that "I divided the $8,207 by 40 percent to back into the $20,517 figure
to give Mr. Hall the benefit of that source of income as a capital gain item which-
would be the full amount." Implicit in respondent's determination in the notice of
deficiency is the determination that petitioner had no tax bases in what he sold;
i.e., that his gains amounted to his total receipts from the sales of capital
assets.
2 See infra, text following note 9 reference, for a discussion of respondent's
concession as to this component of the source and application of funds method.
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