Waterfall Farms, Inc. - Page 10

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          March 1998.  In the amended returns, Waterfall Farms eliminated             
          the deduction for food for employees.  As a result, the                     
          corporation reported taxable income of $7,021 for 1995 and $6,163           
          for 1996.                                                                   
               2.   The Hubers                                                        
               The Hubers timely filed their joint income tax returns for             
          1995, 1996, and 1997.  On these returns, the Hubers reported Mr.            
          Huber’s wages from Waterfall Farms.  They reported farming income           
          (including Mr. Huber’s share of the proceeds from the sale of               
          crops grown on the Huber farm) as self-employment income.  They             
          did not report any income attributable to their food, lodging-              
          related, and medical expenses paid by Waterfall Farms.                      
          The Hubers filed a Form 1040X, Amended U.S. Individual Income               
          Tax Return, for 1995.  On the amended return, the Hubers elected            
          to defer crop insurance proceeds.  The amended return did not               
          include the $4,290 paid by Waterfall Farms for the Hubers’ food             
          in 1995.  The Hubers did not amend their 1996 return to include             
          the $4,395 paid by Waterfall Farms for their food in 1996.                  
               On Schedule F, Profit or Loss from Farming, Mr. Huber                  
          reported gross income, total expenses, and net profit or loss               
          from his separate farming activities for 1995, 1996, and 1997 as            
          follows:                                                                    









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