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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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