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liabilities of the sole proprietorship, including the settlement
judgment, when it took over the business in 1986. However, in
the 1987 deposition, petitioner stated that the only liabilities
Taxman assumed were two bank loans totaling $31,000. Petitioner
did not document the transfer of assets and liabilities to Taxman
and has not provided any evidence that Taxman assumed the
settlement liability.
Petitioner also argues again that the IRS audit of his 1987
tax return required him to treat the settlement judgment payment
as a corporate expense. The audit papers in the record contain
no reference to the settlement judgment or the liabilities that
were or were not transferred to Taxman. Petitioner has not met
his burden of proving that Taxman assumed the $6,000 liability;
therefore, the $6,000 payment is compensation income to
petitioner for 1990.
Taxman paid $310 to the law firm of Pearson, Christensen &
Fischer during 1990. The payment was for consultations between
petitioner and Mr. Pearson regarding Schedules C, Profit or Loss
From Business (Sole Proprietorship), of petitioner’s personal
income tax returns for 1982, 1983, and 1984. Petitioner claims
that he did not report the $310 as personal income because Taxman
assumed the liabilities of his sole proprietorship, and he was
instructed in the audit for his 1987 return to place “deductions
of business expenses” on Taxman’s return. The audit of
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