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$4,687,700, the difference between the adjusted basis of
Minnechaug and its fair market value on December 31, 1990.
In 1990, when Mary Catherine wrote down Minnechaug, it held
a number of other parcels for development, including the Ridge,
none of which were written down during that year, or at any time
thereafter.
Use of Original Bases for Subsequent Sales
Subsequent to the 1989 and 1990 writedowns, Mary Catherine
sold some of the residential lots in the Ridge and Minnechaug.
On its Federal income tax returns for years 1990 through 1994,
Mary Catherine computed and reported gains for income tax
purposes from the sales of these residential lots using the
original cost basis of the properties rather than an adjusted
basis reflecting the writedowns to market value that Mary
Catherine had reported on its income tax returns. As of the time
of trial, petitioner had not caused Mary Catherine to file
amended returns for taxable years 1990 through 1994 reporting
gains on the sale of the residential lots in a manner consistent
with the LCM method.
Mary Catherine’s Tax Returns
Mary Catherine’s Federal income tax returns on Form 1120S
for the years 1987 through 1990 were prepared by Bobrow.
Attached to Mary Catherine’s 1989 and 1990 income tax returns
were disclosure statements prepared by Bobrow. The disclosure
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