Diane S. Blodgett - Page 7

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          Deductions, Etc., for the five shareholders, including                      
          petitioner.  Line 23 of petitioner’s Schedule K-1, Supplemental             
          Information Required To Be Reported Separately to Each                      
          Shareholder, stated:  “The overall S corporation loss reported on           
          this K-1 is deductible only to the extent you have basis in your            
          S corporation stock.  To the best of the bankruptcy trustee’s               
          knowledge your basis is $-0-.”                                              
               On her 1998 Federal income tax return, which was prepared by           
          Mr. Blodgett from prison, petitioner reported wage income of                
          $45,788.24 and income tax withheld of $5,582.56.  The return also           
          included a $38,046,524 loss deduction on line 12, Business Income           
          or (Loss).  This amount represented the amount listed on the                
          proof of claim filed by the Federal Trade Commission in the                 
          bankruptcy case against T.G. Morgan, Inc.  The return claimed a             
          refund of all of petitioner’s withholdings for 1998.   A letter             
          attached to her return entitled “Explanation for Large Loss Carry           
          Forwards from 1992...for Diane S. Blodgett” stated:                         

                    In 1991, I was a “non-party” spouse signatory and                 
               supposedly a beneficiary of a series of at least three                 
               “consent settlement” contracts with the Federal Trade                  
               Commission, and thus and under Minnesota marital property              
               and contract and RICO laws, promised property or property or           
               Constitutional rights which by breach of contract,                     
               extortion, alienation, or other RICO or federal or state               
               civil or criminal misconduct were taken from me.                       
                    Documents suppressed by the parties at that time, later           
               became available showing wrongdoing and a high level                   
               conspiracy involving very powerful people and lawyers.                 





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