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1. 1974 and 1975
Mr. Alexander and his wife, Freida, filed joint Federal
income tax returns for the taxable years 1974, 1975, 1976, and
1977. Following an examination of their returns for 1974 and
1975, the Alexanders conceded certain adjustments proposed by
respondent, resulting in agreed assessments of $2,133 and $811
for 1974 and 1975, respectively.15 However, because the
Alexanders declined to agree to other proposed adjustments,
respondent, on November 29, 1979, issued a notice of deficiency
determining deficiencies of $4,891.83 and $40,760.38,
respectively, in their Federal income taxes for 1974 and 1975.
Respondent's deficiency determinations against the
Alexanders for 1974 and 1975 were based, in part, on disallowance
of interest deductions of $2,917 and $46,500, respectively,
attributable to their participation in Kersting programs for
those taxable years. Additional adjustments included
disallowance of an $18,500 capital loss claimed by the Alexanders
for 1974 on a sale of stock in Mendocino Financial Corp. and
respondent's determination that they had failed to report a
$59,080 capital gain for 1975 from a sale of real estate to the
Cadillac Drive Apartments partnership.
15 The Alexanders were represented during the audit
by their accountant, Gilbert Matsumoto (Mr. Matsumoto). Mr.
Matsumoto had served as the accountant for some of Mr. Kersting's
subchapter S leasing corporations, and Mr. Kersting had
recommended that program participants use Mr. Matsumoto, among
others, to prepare their tax returns.
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