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For 1998, LKHP filed a Form 1065 (1998 return) with attached
Schedule K reporting net income of $389,124 and distributions of
$423,500. The 1998 return’s Schedule K-1 for the amended trust
reported allocations of $388,929 of income in accordance with the
99.95-percent profit interest and the entire amount of the
distribution. Hillgren’s Schedule K-1 reported $195 in income
and no distribution. Also for 1998, LKHP filed an amended
Form 1065 (1998 amended return). The 1998 amended return reduced
the net income to $320,369 and reported guaranteed payments to
partners of $68,755. The distribution remained unchanged.
Similar to the 1997 second amended return, the 1998 amended
return reported a corrected allocation of the 25-percent profit
interest to Hillgren. The income that was reported on the
Schedules K-1 was reallocated accordingly, but the amount of the
distribution to the amended trust remained the same.
For 1999, LKHP filed a Form 1065 and an amended Form 1065 to
report again the corrected allocation of the profits interest and
to report guaranteed payments to partners. For 2000 and 2001,
LKHP filed Forms 1065 with the correct allocation of the profits
interest, and no amended returns were filed.
Estate Tax Return
On August 28, 1998, the estate filed decedent’s Form 706,
United States Estate (and Generation-Skipping Transfer) Tax
Return (estate tax return). The estate provided financial
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