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of his 1995 Form N-11, State of Hawaii Individual Income Tax
Return.
Notice of Deficiency and Related Matters
On October 6, 1998, respondent issued a notice of deficiency
disallowing the Federal energy credit claimed by petitioner on
his 1995 return. The notice described respondent’s basis for the
determination as follows:
It is determined that you are not entitled to the
energy credits you have claimed. It has been
determined that you are not entitled to receive
earnings from the trust. Since you do not share in the
earnings of the trust, you are not allowed to receive
passthrough credits. Further, it is determined that
the energy contracts were in substance, a sale of solar
equipment to you. This determination would also
prevent the passthrough of any energy credits.
Petitioner filed his petition contesting respondent’s
determination on December 14, 1998. Over a year after petitioner
filed his petition in this case, HEH arranged for the preparation
of an amended Form 1041 for 1995, on which HEH claimed total net
income of $315,870 (including net profit from its Schedule C of
$361,983), an income distribution deduction of $316,526 for
distributions allegedly made to HEH’s certificate holders, and a
tentative general business credit of $111,638 consisting of a
current year investment credit of $73,552 and a credit
carryforward of $38,086.2 An amended Schedule K-1 was also
2Mr. Sparkman testified that HEH amended its 1995 return
(continued...)
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