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Year COGS Ordinary Loss
1996 $985,000 $512,916
1997 1,277,000 546,466
The Schedules K-1 (Form 1065), Partner’s Share of Income,
Credits, Deductions, etc., attached to the partnership’s Forms
1065 for 1996 and 1997 indicate that the partnership’s ordinary
losses were distributed equally between Conrad and Carroll.
Petitioners’ Income Tax Returns for 1995, 1996, and 1997
Dean A. Avedon, C.P.A., prepared Conrad and Maria’s joint
income tax returns for 1995, 1996, and 1997. Silverman prepared
the Schedules K-1 (Form 1065) that were attached to those
returns. On each of those joint income tax returns, Conrad and
Maria reported that they had no taxable income and owed no income
tax. On their joint income tax return for 1995, Conrad and Maria
reported the net operating loss carryover of $1,750,480 that had
been distributed to them from the trust. The following
explanation was given on this Form 8275 for the existence of the
claimed net operating loss carryover:
Value of paintings of an art gallery (Sidney Janis
Gallery) transferred to a trust were valued at
$36636630 by the IRS at the decedent’s (Sidney Janis)
death. After a blockage discount allowed by the IRS on
audit the estate paid inheritance tax on an amount of
$14500000 after the blockage discout [sic] reported on
Form 706. In accordance with the decision in
Elizabeth G. Augustus, 40 BTA 1201, 12/10/31 (ACQ) the
trust used the individual value of the paintings prior
to the blockage discount for the paintings sold by
trust and for the one (1) painting sold by the heirs as
reported on Schedule C.
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