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Also during WRI's fiscal year 1988, Wise and Eicher made cash
advances to WRI of $9,909 and $32,701, respectively.
F. WRI Losses
WRI sustained losses from its operations during 1986, 1987,
1988, and 1989. Wise and Eicher had each claimed that they had
$840,617 of cumulative losses from WRI as of July 31, 1987. WRI
reported a loss of $784,160 for its fiscal year 1988.
G. Tax Returns
1. Hersco's 1988 Tax Return
Hersco reported a net long-term capital gain of $189,014 on
its 1988 partnership tax return. Also on that return, Hersco
reported the following amount of ordinary income:
Item Amount
Other income $100,115
Less
Guaranteed payment to Eicher 73,122
Taxes 828
Other deductions 1,789
Ordinary income $24,376
a. Capital Gain
Hersco reported net long-term capital gain from the 1984
sale of property from Hersco to WRI. Yearend entries in the
books and records of WRI and Hersco stated that there had been
payments of principal and interest from WRI to Hersco and
simultaneous “loan backs” from Hersco to WRI. No payments were
made. No evidence was offered regarding the terms of these "loan
backs".
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