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partnership returns (including schedules) for the 1996 and 1997
taxable years and allocated the partnership’s income in
accordance with the new agreement.
During early 1998, Mr. Cohen began stating that he had never
agreed to the new agreement. Mr. Cohen’s statements caused a
dispute which resulted in a deadlock: petitioner and Mr. Cohen
agreed to pay expenses but could not agree on distributions. On
September 18, 1998, Mr. Cohen’s attorney sent petitioner a letter
suggesting that petitioner and Mr. Cohen should not remove or
dissipate any of the partnership’s assets, except as required in
the normal course of business.
During 1998, it became clear that Mr. Cohen and petitioner
could not resolve their disputes without litigation. No later
than November 1998, money received by the partnership was stolen
by Mr. Cohen, who opened a legal practice that was in direct
competition with Cohen & Burke. Mr. Cohen and petitioner began
to place the partnership receipts in an escrow account until the
dispute could be resolved.
Mr. Cohen prepared Form 1065, U.S. Partnership Return of
Income (including schedules), for the 1998 taxable year reporting
$242,000 in ordinary income, and, on October 14, 1999, filed the
Form 1065 with the Andover, Massachusetts, Internal Revenue
Service Center. The Schedules K-1, Partner’s Share of Income,
Credit, Deductions, etc., issued to petitioner and Mr. Cohen
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Last modified: May 25, 2011