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rate at which he will be paid and the rate at which he will rent
tools and equipment to the production company. Typically
attached to the deal memo would be a list of the inventory of
petitioner’s tools and equipment. For example, in 1993,
petitioner entered into a deal memo with Mantis Productions
providing for both a weekly and hourly salary, as well as a tool
rental for $100 per day as used and a truck rental for $125 per
week. In 1994, as another example of a typical deal memo,
petitioner entered into an agreement with Mitchell Entertainment,
Inc. to be construction coordinator for the film “Cub Scouts”.
The deal memo, again, provided for daily, weekly, and “straight
time” rates plus “box/kit/equipment” rental at $140 per day.
The production companies at the end of the year would send
petitioner Forms W-2 to reflect wages paid and Forms 1099 to
reflect rentals paid under the terms of the deal memos.
Also in 1993, petitioner rented some of his tools to a third
party for $1,500, for a project in which he (petitioner) was not
involved as construction coordinator or otherwise. However, this
transaction did not result in a loss.
On petitioners’ joint income tax return for 1993, petitioner
reported wages in accordance with the Forms W-2 of $37,838. On a
Schedule C, he reported gross receipts of $10,200 and expenses of
$17,247, resulting in a net loss of $7,047. The gross receipts
were for the rentals received. Included in the expenses are car
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