Frank and Barbara Biehl - Page 7

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          treatment to NCMI would be the same whether it issued one Form              
          1099 or two Forms 1099; in either case NCMI would have a                    
          deductible expense of $1.2 million.  The Superior Court granted             
          the motion, but the record does not indicate whether one or two             
          Forms 1099 were actually filed with respondent.                             
               On their Form 1040, U.S. Individual Income Tax Return, for             
          1996, petitioners included in gross income the $799,000 NCMI                
          directly paid to Mr. Biehl but did not report or disclose the               
          $401,000 payment to Olimpia, Whelan, & Lively.  Respondent                  
          determined in the statutory notice that petitioners should have             
          also included in gross income and adjusted gross income the                 
          $401,000 that NCMI paid directly to their attorneys.                        
          Respondent’s explanation of adjustments in the statutory notice             
          of deficiency goes on to state:  “Alternatively, if it is                   
          determined this income constitutes reimbursement, such                      
          reimbursement was made under a nonaccountable plan and is                   
          includible in gross income.”  Respondent determined that in                 
          either case petitioners would be entitled to a $401,000                     
          miscellaneous itemized deduction from adjusted gross income.                
          Accordingly, respondent determined the deficiency in issue of               
          $97,833, primarily attributable to the AMT liability under                  
          section 55 resulting from disallowance of the itemized deduction            
          under section 56(b)(1)(A)(i) in computing alternative minimum               
          taxable income.                                                             

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