Conrad Janis and Maria G. Janis - Page 13

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               As a result of the gallery’s operations generating net                 
          losses in 1993, 1994, and 1995, the trust reported net operating            
          losses for 1993, 1994, and 1995.  Disclosure statements, which              
          gave the same or similar explanations as those on the Forms 8275            
          that were attached to the trust’s amended fiduciary income tax              
          returns for 1990, 1991, and 1992, were attached to each of the              
          trust’s returns for 1993, 1994, and 1995.                                   
               Two Schedules K-1 (Form 1041), Beneficiary’s Share of                  
          Income, Deductions, Credits, etc., were attached to the trust’s             
          fiduciary income tax return for 1995.  These Schedules K-1                  
          reported that the net operating losses that had been generated by           
          the trust’s operations, which were reported to total $3,500,960,            
          were distributed to Conrad and Carroll in equal share (i.e.,                
          $1,750,480 each).                                                           
               For the period between the trust’s termination and                     
          December 31, 1995, Conrad and Carroll separately reported their             
          one-half interests in the gallery’s operations on Schedules C               
          that were attached to their Forms 1040, U.S. Individual Income              
          Tax Return, for 1995.  On these Schedules C, Conrad and Carroll             
          reported that their one-half interests in the gallery’s inventory           
          had a beginning value of $15,759,425 (i.e., a value equal to one-           
          half of the ending inventory value reported on the trust’s final            
          return).  They reported that their one-half interests in the                
          gallery’s inventory had an ending value of $15,561,925.                     






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