Epco, Inc. and Subsidiaries - Page 9




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          income the $164,375 of disbursements made from the escrow account           
          during 1988 on its 1988 Federal corporate income tax return.                
          Petitioner did not include in income the 1989 disbursements from            
          the escrow account totaling $35,625 on its 1989 Federal corporate           
          income tax return.                                                          
               Petitioner included the $164,375 paid to "Price/McClanahan"            
          in its cost basis of the sewer line (referred to by petitioner as           
          the "Brookshire Trunk Sewer Line") on the depreciation worksheet            
          attached to its corporate income tax return and, with regard to             
          this amount only, claimed depreciation in the amount of $6,164.05           
          for 1988 and $11,866.27 for the 1989 tax year.  Petitioner                  
          claimed a total cost basis in the Brookshire Trunk Sewer Line in            
          the amount of $373,514.44 on its 1989 consolidated Federal                  
          corporate income tax return3 and claimed total depreciation on              
          the sewer line in the amounts of $15,279.92 and $30,757.31 for              
          the 1988 and 1989 tax years, respectively.                                  
                                       OPINION                                        
          General Discussion                                                          
               Gross income generally means all income from whatever source           
          derived.  See sec. 61(a).  Section 118(a) provides an exception             
          to the general rule and states:  "In the case of a corporation,             


               3    There is no explanation in the record as to the                   
          difference between the cost basis of the sewer line as reported             
          on petitioner's corporate income tax return and the stipulated              
          cost of $350,000.                                                           




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