- 5 - accrued interest indebtedness to the bank.4 The partnership treated the COD income as an item of partnership income and allocated the COD income separately to all of the partners, including James, pursuant to the "special allocation" provisions of the partnership agreement. On the 1992 Form K-1 that the partnership issued to James, the partnership reported that it allocated $6,166,647 of COD income to James. On petitioners' 1992 joint Federal income tax return, petitioners excluded $5,750,737 of the $6,166,647 of COD income from their joint gross income due to insolvency pursuant to section 108(a)(1)(B) (the insolvency exception) and reported $415,910 of the $6,166,647 of COD income. Petitioners did not reduce a $487,730 NOL carryover from 1992 to 1993 (Susan's NOL) by the $5,750,737 of excluded COD income.5 4 The partnership reported the $14,094,231 of COD income on its 1992 tax return because that is when the period of limitations for collecting on the note expired. Additionally, in 1992, the period of limitations for collecting on the guaranty also expired. 5 Petitioners, in an attachment to their 1992 Form 1040, explained the generation of Susan's NOL as follows: Total James Susan NOL generated in 1983 $67,432 $33,716 $33,716 NOL generated in 1984 1,063,747 531,873 531,874 NOL generated in 1985 590,075 295,037 295,038 NOL generated in 1986 352,211 176,105 176,106 NOL generated in 1987 340,178 170,089 170,089 NOL utilized in 1988 (866,246) (433,123) (433,123) NOL generated in 1989 233,969 116,984 116,985 NOL generated in 1990 454,053 227,026 227,027 (continued...)Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011