- 5 -
1998 1999
Gross receipts $120,156 $1,092,295
Cost of goods sold 235,988 359,295
Gross profit (loss) (115,832) 733,000
Other income 684,336 -0-
Total income 568,504 733,000
Deductions 701,594 801,676
Income (loss) (133,090) (68,767)
The classification of certain income as “other income” in 1998
rather than “gross receipts”, as was done in 1999, was not the
result of a change in PFC’s operations during those years. The
“Balance Sheets per Books” filed with these returns reflected the
following year-end asset costs and values:
1998 1999
Cost of depreciable assets 503,996 510,360
Less accumulated depreciation (335,532) (404,699)
Other assets 250,423 233,490
Total assets 418,887 339,151
PFC has reported operating losses in each year since its
inception. Petitioner’s share of these losses, as a 90 percent
owner, were as follows: $32,789 in 1996, $202,609 in 1997,
$119,781 in 1998, and $61,808 in 1999. Because petitioner’s
adjusted basis in his PFC stock during the years in issue was
zero, petitioner was unable to deduct these losses in full. As
of the end of 1998, petitioner’s suspended loss was $244,179, and
as of the end of 1999, petitioner’s suspended loss was $275,987.
Petitioners filed joint Federal income tax returns for
taxable years 1998 and 1999. With each of these returns,
petitioners filed a Schedule C, Profit or Loss From Business, for
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