R. Paul Kropp - Page 6

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          properties, land, and brokerage account.  Based upon that                     
          understanding and the issuance of Forms 1099-MISC, Miscellaneous              
          Income, by the bookkeeping service provider, Mr. Shea deducted                
          the withdrawn funds on Doris Kropp’s tax returns, including her               
          1994 tax return.  Beginning with when Mr. Shea first prepared a               
          tax return for Doris Kropp through the filing of her 1994 tax                 
          return, Mr. Shea has never been directed to treat the withdrawn               
          funds differently.                                                            
               In 1996, Mrs. Harte obtained a power of attorney from Doris              
          Kropp.  By 1997, Mr. Shea referred only to Mrs. Harte and her                 
          husband with regard to Doris Kropp’s financial affairs.                       
               In separate notices of deficiency for 1994, respondent                   
          determined, among other items, that the $81,000 was nonemployee               
          compensation and included the $81,000 in Paul’s and Lorna’s                   
          I.   Taxability of the $81,000 Withdrawal                                     
               Gross income encompasses “all income from whatever source                
          derived, including * * * Compensation for services”.  Sec. 61(a).             
          The value of property acquired by gift, however, is not included              
          in gross income.  See sec. 102(a).  In Commissioner v.                        

               4  Respondent included the entire $81,000 in Paul’s income.              
          Respondent also included one-half of the $81,000 in Lorna’s                   
          income.  Pursuant to applicable community property laws, Paul and             
          Lorna must each report one-half of any amount established by the              
          Court as nonemployee compensation.                                            

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