Rodney J. Blonien and Noreen E. Blonien - Page 7

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          income of $127, (3) Finley Kumble ordinary loss of $1,251, and              
          (4) itemized deductions of $57.                                             
          Discussion                                                                  
               Petitioners and respondent provide the following alternative           
          computations of petitioners’ additional taxable income:                     
                    Petitioners’ Computation      Respondent’s Computation            
                    Additional Taxable Income Additional Taxable Income               
          COD income          $9,482.17           $36,332                             
          $2,000 credit    (2,000.00)             (2,000)                             
          Finley Kumble                                                               
          interest income     127.00         Already accounted for                    
          Capital loss           (18.00)            Already accounted for             
          Finley Kumble                                                               
          ordinary loss     (1,251.00)            Already accounted for               
          Itemized deductions    (57.00)            Already accounted for             
               Total:    6,283.17                  34,332                             
               Petitioners argue the two-step process described above was             
          not the proper method to compute and allocate COD income to                 
          petitioner.  They complain that the two-step process resulted in            
          an allocation of COD income to petitioner that substantially                
          exceeds his percentage interest in profits and losses as shown by           
          his Schedule K-1 for 1992, the taxable year in issue.                       
          Petitioners also argue respondent’s Rule 155 computation did not            
          take the adjustment items into account.                                     
          Issue 1.  Whether the Proper Method Was Used To Compute                     
                    and Allocate Finley Kumble COD Income to Petitioner               
               Petitioners argue that, in accordance with Finley Kumble’s             
          1992 Form 1065 and Schedule K-1, petitioner’s increased                     
          distributive share of Finley Kumble’s COD income should be                  





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