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Petitioners reported gain from the sale of Malloy on their
Form 4797, Sales of Business Property, attached to their 1988
return. They misreported the net proceeds they received from
sale of the property, $37,531, as the "Gross sales price" and
calculated their gain as follows:
Gross sales price $37,531
Depreciation 12,333
Adjusted basis and expenses (44,554)
Gain reported $ 5,310
The gain should have been calculated as follows:
Gross sales price $104,500
Depreciation 18,333
Adjusted basis and expenses (52,254)
Gain realized $ 70,579
Thus, petitioners underreported their income of the Malloy
property by $65,269. At the time that he prepared petitioners'
1988 Federal tax return, petitioner knew that he was required to
report the gross sales price, not the net proceeds, in computing
the gain. He failed to report the gross sales price in order to
defeat or avoid the payment of taxes known to be owing on
petitioners' gain from the sale of Malloy.
Exchange Properties
On or about January 31, 1986, petitioners acquired for
$205,000 an interest in certain property in Orange County,
California, known as the Detroit properties. In February 1986,
petitioners conveyed an undivided one-half interest in the
Detroit properties to Boris and Natliya Landau (the Landaus) for
no cash consideration.
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