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from Sanrio was reported on the Schedules C attached to
petitioners' 1990 return.
D. Petitioners' Explanation of Unreported Sanrio Income
From 1978 to 1984 petitioners lived in Boise, Idaho, where
they engaged in real estate transactions. In 1983, they acquired
an interest in Regent Properties (Regent), a 40-acre real estate
development in Boise. In 1984, petitioners stopped paying equity
into Regent, which had generated losses for them. Since then,
they have not been actively involved in the property. At trial,
petitioner was unaware of Regent's status, although the Paus
still held their interest in it.
Since 1986, petitioners had wanted to take advantage of
projected losses from Regent but had been unsuccessful, because
their ordinary income could not be applied against capital losses
from the property. Petitioner hoped to treat the $840,000 as a
capital gain and to apply $300,000 to $350,000 of capital losses
from Regent against it if and when such losses were realized.
Petitioners deliberately did not report the $840,000 of income
from Sanrio on their 1990 income tax return, because they wanted
to wait until the losses were realized, in order to report the
income and the losses simultaneously. Therefore, they thought it
would be easier to file an amended return to report the
additional income, rather than to report it on the original
return for 1990 and later file an amended return to claim a large
refund.
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