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managed account funds deposited into the bank accounts in
petitioner’s name.
On his 1986 individual Federal income tax return, petitioner
claimed $47,802 as an interest expense deduction relating to a
home mortgage.
On his 1987 individual Federal income tax return, petitioner
claimed $108,037 as an ordinary business expense deduction for
legal fees relating to the claim against him for damages in the
GSC liquidation proceeding.
Petitioner attached to his 1987 Federal income tax return a
disclosure statement reflecting tax advice that petitioner had
received from his tax accountant that the $573,750 in managed
account funds reflected in the consent judgment against
petitioner in GSC’s liquidation proceeding should not be treated
as income to petitioner but as loans that GSC and petitioner
intended to repay to managed account investors.
Respondent’s Audit
On audit, using total deposits made into the bank accounts
in petitioner’s name (including deposits of managed account
funds) of $299,965, $312,039, and $293,212, for 1984, 1985, and
1987, respectively, respondent determined that petitioner
received and was taxable on managed account funds in the
following amounts:
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Last modified: May 25, 2011