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On their joint income tax returns for 1996 and 1997, Conrad and
Maria reported net operating loss carryovers of $714,627 and
$847,645, respectively. Neither of these returns contained a
Form 8275 or similar disclosure statement.
Silverman prepared Carroll and Donna’s joint income tax
returns for 1995, 1996, and 1997. On their joint income tax
return for 1995, Carroll and Donna reported the net operating
loss carryover of $1,750,480 that had been distributed to them
from the trust. In addition, they reported that they had no
taxable income for that year. On their joint income tax returns
for 1996 and 1997, Carroll and Donna reported net operating loss
carryovers of $123,985 and $202,381, respectively. They also
reported that they had no taxable income and owed no income tax
for 1996 and $15,312 of taxable income and owed $1,531 for 1997.
Neither a Form 8275 nor a similar disclosure statement was
attached to Carroll and Donna’s joint income tax returns for
1995, 1996, or 1997.
Examination of Petitioners’ Income Tax Returns for 1995, 1996,
and 1997
Petitioners’ 1995, 1996, and 1997 income tax returns were
examined by the IRS. As a part of this examination, the trust’s
fiduciary income tax returns for the years 1990 through 1995 and
the partnership’s Forms 1065 for 1996 and 1997 were also
examined. Respondent determined that, for purposes of
calculating the gallery’s COGS for the years 1990 through 1997,
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