- 22 -
Depreciation (3,204.00) -- (3,204.00)
Other deductions (55,159.00) -- (55,159.00)
Total deductions (58,363.00) -- (58,363.00)
Ordinary income (loss) (36,394.00)1,825,086.00 1,788,692.00
Schedules K-1:
Mr. Herbel (10%) (3,639.40) 182,508.60 178,869.20
Mr. Webb (90%) (32,754.60) 1,642,577.40 1,609,822.80
Based upon respondent's determination that Malibu's
gross receipts had been understated, respondent further
determined that the gross income of each of Malibu's
shareholders had been understated. The notice of
deficiency issued to Mr. Herbel, who owned 10 percent
of Malibu's stock, states as follows:
Due to the audit of Malibu Petroleum, Inc. and
Subsidiaries, it is determined that your share of
the corporation's taxable income is $178,869.00.
Therefore, taxable income is increased
$178,869.00 for 1988. * * *
The notice of deficiency issued to Mr. Webb, who owned 90
percent of Malibu's stock, states as follows:
Due to the audit of Malibu Petroleum, Inc. and
Subsidiaries, it is determined that your share of
the corporation's taxable income is $1,609,823.00
rather than the loss of $32,755.00 as reported on
your 1988 tax return. Therefore, taxable income
is increased $1,642,578.00 for 1988. * * *
Discussion
The issue presented in these consolidated cases is
whether the payment of $1,850,000 received by Malibu during
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