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inventory at the end of 1990 was $12,354,316. Thus, the gallery
reported that its COGS for 1990 was $48,891. After subtracting
returns and allowances, COGS, and its expenses from its amount of
gross receipts and sales, the gallery reported a net loss of
$516,223 for 1990. This loss was carried through to the trust’s
fiduciary income tax return for 1990 and caused the trust to
report a net operating loss for that year.
Silverman prepared the trust’s fiduciary income tax returns
for 1991 and 1992 in similar fashion. On the Schedule C attached
to the trust’s fiduciary income tax return for 1991, the gallery
reported that its COGS was $1,235,185 and that its operations
generated a net loss of $432,229. This loss was carried through
to the trust’s fiduciary income tax return for 1991 and, along
with the trust’s net operating loss for 1989 and a portion of the
trust’s net operating loss for 1990, offset the income that the
trust earned that year.
On the Schedule C attached to the trust’s fiduciary income
tax return for 1992, the gallery reported that its COGS was
$35,000 and that its operations generated a net loss of $652,797.
This loss was carried through to the trust’s fiduciary income tax
return for 1992 and caused the trust to report a net operating
loss for that year.
On or about February 19, 1994, Silverman prepared amended
fiduciary income tax returns for the trust for 1990, 1991, and
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