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reported net oil royalty income from Canada of $300,115 and
foreign taxes paid in the amount of $182,608. The Schedules K-1,
Partner’s Share of Income, Credits, Deductions, Etc., issued to
the estate and Russell allocated to each, as distributive share
items, one-half of partnership ordinary income, gross farming
income, oil revenue income, and oil royalty income from Canada.7
On a Schedule E, Supplemental Income and Loss, attached to
his 1994 Form 1040, U.S. Individual Income Tax Return, Russell
reported ordinary income of $584,122 from BBP.8 On a Schedule E
attached to its 1994 Form 1041, U.S. Income Tax Return for
Estates and Trusts, the estate reported ordinary income of
$616,423 from BBP.9
During its existence, BBP did not maintain a general ledger,
a balance sheet, a sales journal, or a purchases journal. BBP
7The 1994 Form 1065, U.S. Partnership Return of Income, also
reported investment income of $13,428 and charitable
contributions of $275. These items were allocated evenly between
the estate and Russell.
8Attached to the 1994 Form 1040, U.S. Individual Income Tax
Return, was a supplemental statement titled “Schedule E -
Supplemental Information”, which showed ordinary income from BBP
of $621,355, less “depletion cost percentage” totaling $37,233,
resulting in the amount of $584,122 listed on Schedule E.
9Attached to the 1994 Form 1041, U.S. Income Tax Return for
Estates and Trusts, was a supplemental statement titled “FLOW-
THRU DETAIL REPORT-FORM 1065", listing income from BBP of
$621,355. A depletion deduction of $4,932 was listed on the
supplemental statement. This amount was deducted from the income
listed on the Form 1041 and resulted in the total of $616,423
listed on the Schedule E.
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