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The Beagles jointly filed Forms 1040, U.S. Individual Income
Tax Return, for 1983 and 1984. On the return for 1983,
Schedule E, Supplemental Income Schedule, the Beagles deducted a
net loss of $11,832.47 relating to Jackson. The Schedule K-1,
Partner’s Share of Income, Credits, Deductions, etc., from
Jackson for 1984, however, was not received by the Beagles until
after they had filed their return for 1984. The Schedule K-1
from Jackson to the Beagles reported an ordinary loss of $1,057
for 1984. That amount was claimed by the Beagles on a
Form 1040X, Amended U.S. Individual Income Tax Return, for 1984
filed in April 1985.
Donald J. Kuehne (Kuehne) was the tax matters partner (TMP)
for Wilshire West for 1983 and 1984. John R. Jackson was the TMP
for Jackson for 1983 and 1984. Sometime prior to December 16,
1986, the Internal Revenue Service (IRS) began an examination of
Wilshire West for 1983 under the TEFRA audit procedures, and,
sometime prior to October 1, 1987, the IRS began an examination
of Wilshire West for 1984. Forms 872-P, Consent to Extend the
Time to Assess Tax Attributable to Items of a Partnership, for
Wilshire West for 1983 and 1984 were duly executed by Kuehne for
Wilshire West.
At about the time that the Beagles invested in Jackson,
programs promoted by Norman Swanton (Swanton) were being
investigated by the IRS. Although some civil investigation of
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