Ernst L. Meier - Page 15




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               Petitioner’s individual Federal income tax returns for 1992            
          through 1995 were prepared based on the accrual method of                   
          accounting.                                                                 
               On April 16, 1996, petitioner filed his individual Federal             
          income tax return for 1995 on which there was claimed an ordinary           
          business bad debt deduction in the amount of $3,207,578, based on           
          the claimed balance due from Blackland as of December 31, 1995,             
          with respect to the purported loans petitioner had made to                  
          Blackland (computed as $2,979,568 in principal and $228,010 in              
          accrued interest).  The bad debt deduction claimed by petitioner            
          for 1995 did not take into account the $600,000 that petitioner             
          appears to have withdrawn from Blackland in March of 1996, just             
          days before the filing of petitioner’s 1995 individual Federal              
          income tax return.                                                          
               Due mostly to the above-claimed bad debt deduction,                    
          petitioner’s individual Federal income tax return for 1995                  
          reflected a $3,267,334 net operating loss.                                  
               On October 15, 1996, petitioner filed an amended individual            
          Federal income tax return for 1992 on which petitioner reflected            
          a carryback of the above-claimed 1995 net operating loss.3                  
          Petitioner’s amended income tax return for 1992 reflected a                 


          3    Previously, in 1995, petitioner had filed an amended                   
          individual Federal income tax return for 1992 to carry back a net           
          operating loss reflected on petitioner’s 1994 individual Federal            
          income tax return.                                                          





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