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in the FTC case to turn over all assets held in the settlement
estate to the bankruptcy trustee (turnover order).2 FTC v. T.G.
Morgan, Inc., supra. The turnover order specified that those
assets determined in the bankruptcy proceeding “to be property of
the Federal Trade Commission, defendant Michael W. Blodgett, his
spouse Diane Blodgett, or any entity that is owned or controlled
by Michael W. Blodgett or Diane Blodgett, such asset or proceeds
thereof shall be returned by the trustee to the T.G. Morgan
Settlement Estate”. The turnover order further provided: “all
assets determined to be property of the estate of defendant T.G.
Morgan, Inc. shall be retained by the trustee.” After the
turnover order, the Florida property and Simbari painting became
a part of the bankruptcy estate and were not returned to the
settlement estate.
As part of the bankruptcy proceedings, the bankruptcy
trustee prepared and filed Forms 1120S, U.S. Income Tax Return
for an S Corporation, for the business for the years 1990 through
1998. Petitioner did not participate in the preparation of these
returns. On the 1992 return, filed by the trustee in February
1999, the business reported an ordinary loss in the amount of
$17,202. The trustee prepared and issued to the shareholders
Schedules K-1, Shareholder’s Share of Income, Credits,
2 At the time of the turnover order, the litigation
estate fund had been exhausted.
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