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On the Schedule E attached to their 1995 return, petitioners
reported income or loss from 21 S corporations, including Griffin
California.2 On the Schedule C, Profit or Loss from Business
(Schedule C), attached to their 1995 return, petitioners reported
$931 net profit from Creekside Manor of Fairfield (Creekside
Manor). On Schedules C attached to their 1996 return,
petitioners reported a $1,422 net loss from Creekside Manor and
$31,382 net profit from Citation Skymaster Shelton Korbel Homes
(Citation Skymaster). On the Schedules C, petitioners identified
the principal business of both Creekside Manor and Citation
Skymaster (the Schedule C activities) as “construction”.
Respondent’s examination of petitioners’ 1995 and 1996
Federal income tax returns commenced October 6, 1999. In the
notice of deficiency, respondent disallowed petitioners’ claimed
deductions for the tax payments but treated the tax payments as
capital contributions by petitioners to Griffin California and as
deductible expenses of the partnerships, resulting in a flow
through of 60 percent of the deductions to Griffin California.
OPINION
Deduction for Taxes Paid Under Section 164
Section 164 allows a deduction for certain taxes, including
State and local property taxes. In general, taxes are deductible
2 The Schedule E attached to petitioners’ 1996 return does
not contain similar detail, but rather lists four S corporations
by name (not including Griffin California Enterprises, Inc.), and
then references “ALL OTHERS” without further specifics.
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Last modified: May 25, 2011