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a partnership. The partnership continued to operate the gallery
throughout the years in issue. Fiduciary income tax returns were
filed for the trust for 1989 through 1995. Forms 1065, U.S.
Partnership Return of Income, were filed for the partnership for
1996 and 1997.
David J. Silverman (Silverman) prepared the fiduciary income
tax returns for the trust and the Forms 1065 for the partnership
during those years. Silverman is an accountant and has been an
enrolled agent since approximately 1974. Silverman assisted in
the preparation of the Form 706 for Sidney’s estate and had been
a longtime tax adviser to the gallery and to Carroll and Donna
prior to preparing the tax returns for the trust and the
partnership. Silverman has also written extensively on the
subject of taxes and has represented other art galleries in their
tax matters.
On or about August 6, 1991, Silverman prepared the fiduciary
income tax return filed for the trust for 1990. Attached to this
fiduciary income tax return was a Schedule C, Profit or Loss from
Business. The Schedule C reflected the trust’s operation of the
gallery during 1990. In order to determine the cost of goods
sold (COGS) for 1990, the gallery used the discounted value of
the collection as originally reported on Sidney’s estate tax
return, $12,403,207, as the value of the gallery’s inventory at
the beginning of that year. The value reported for the gallery’s
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Last modified: May 25, 2011