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Year Consulting Interest Rent Total
1985 $120,000 $933,054 $304,845 $1,357,899
1986 120,000 599,692 242,500 962,192
1987 120,000 681,950 312,154 1,114,104
1988 120,000 694,879 258,817 1,073,696
1989 120,000 652,926 295,411 1,068,337
On their books and records and tax returns, petitioners
regarded the timber farm as qualifying as a trade or business,
and petitioners generally treated current expenses incurred on
the timber farm as ordinary and necessary expenses of a trade or
business.
The employees on the timber farm maintained a log of
expenses they incurred, and receipts were maintained with an
indication of the equipment and activity to which the expenses
related.
Petitioners capitalized many of the costs relating to
capital assets located on or constructed on the timber farm. For
example, the water reservoir was treated as a self-constructed
capital asset, and costs that petitioners allocated thereto were
not expensed but were charged to a capital construction account
for the reservoir. On petitioners' original Federal income tax
returns for 1987, 1988, and 1989, a total of approximately
$70,000 was capitalized as part of the capitalized costs of the
reservoir and pond.
On petitioners' proposed revised Federal income tax returns
for 1987, 1988, and 1989, a total of $174,000 in costs is
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