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complex multiparty transactions were entered into on August 31,
September 1, September 28, and November 27, 1995; and on October
31, 1996, and September 1, 1997.17
3. Petitioner’s Rental Expense Deductions and Note
Disposition Losses
On its 1995 tax return, petitioner claimed CMACM’s purported
$1,982,825 loss from partial disposition of the $4,056,220
Jenrich note to Okoma, resulting in petitioner’s $404,000 NOL for
1996. On its 1996 tax return, petitioner reported that CMACM had
a $469,221 cost basis for the portion of the $4,056,220 note
transferred to Lexington for an unsecured $10,000 promissory note
on October 31, 1996. On the basis of that, petitioner claimed
CMACM’s $459,221 loss on the partial disposition of the Jenrich
note. Petitioner also claimed $414,041 as rental expenses on its
1996 tax return attributable to CMACM’s 1996 purported over lease
rental payments. CMACM’s claimed rental expenses equaled, and
were completely offset by, the amounts due petitioner under
Jenrich’s equipment purchase installment note.
17Attached to this opinion as app. A is a 3-page, 17-step
flow chart reflecting the basic elements of the transactions.
Attached as app. B is a single-page summary of app. A. Apps. A
and B were prepared by respondent and used during the trial as an
aid to understanding the various steps in the questioned
transactions. The appendixes were not received in evidence, but
were marked for purposes of identification. These charts are
included solely to aid in better understanding the complex fact
pattern in this case.
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