National Industrial Investors, Inc. - Page 14

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                  The parties settled the McMahon Litigation in 1988, and in                           
            October of 1989, petitioner destroyed most of the underlying                               
            documentation for its expenses from 1971 to 1984 or 1985.                                  
            Petitioner's management considered them old and irrelevant.  But                           
            it kept the checks for Sale By Owner and Far Western, reasoning                            
            that those expenses were "more current".  Petitioner also kept                             
            its unaudited books of original entry, and other books based on                            
            them.  Since 1976, the first contested loss year, a member of the                          
            Byrne family has kept the books of original entry.  An accountant                          
            compiled some of the other ledgers and journals using the                                  
            information the Byrnes gave him.                                                           
                  While prior years' events generate petitioner's claimed net                          
            operating losses, including depreciation and interest, the events                          
            of 1989 and 1990 generate petitioner's other claimed deductions.                           
            Respondent conceded some of these current deductions, and of the                           
            amounts remaining in controversy, respondent has admitted that                             
            petitioner has substantiated the following amounts:                                        
                  Category                                  1989           1990                        
                  Management fees of  Byrne.........     $500.00   $3,656.30                           
                  Fees/expenses of Charles Byrne III...   276.72      500.00                           
                  Repairs...............................  123.14      299.57                           
                  Insurance                                                                            
                        for Automobile..................   795.80      661.60                          
                        on Byrne's Life................. 1,114.10       -0-                            
                  Telephone.............................. 905.39    1,864.15                           
                  Travel................................   48.77       -0-                             
                  Dues and subscriptions                                                               
                        Newspapers.......................   40.00       92.60                          
                        SF Commercial Club...............   75.17       65.00                          
                  Office expenses                                                                      




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