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The 1986 Return
On the 1986 return, petitioner and husband reported the
April 8, 1986, sale by husband of his 6,571,201 shares in Omni to
RM & Sons. They reported a sales price of $1,232,100 and a cost
basis of $1,388,125, for a loss of $156,025. They did not claim
the loss, however, stating: “loss of $156,025 not deducted as
the sale was to a related entity.” On September 20, 1988,
petitioner and husband made an amended return for 1986 (the
amended return). On neither the 1986 return nor the amended
return did they report any amount with respect to the DTC
liquidating distribution.
Husband’s Criminal Conviction
On or about October 6, 1994, husband was convicted (the 1994
conviction) of violating sections 7201 (“Attempt to evade or
defeat tax.”) and 7206 (“Fraud and false statements.”). Among
the counts on which he was convicted were counts charging him
with (1) tax evasion on account of his failure to report and pay
tax for 1986 on income resulting to him from his conversion of
the DTC liquidating distribution, and (2) willfully making false
returns of income for 1986 by, among other things, failing to
report a liquidating dividend from Omni of approximately $2.2
million.
On December 21, 1994, with respect to the 1994 conviction,
husband was sentenced to 51 months in prison, plus 3 years
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