Shannon D. Mullins - Page 6

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          On or around October 26, 2001, petitioner received a payment of             
          $8,000 from Mr. Taylor.  Petitioner did not receive any payment             
          of the remaining $32,000 in taxable year 2001.                              
               In an agreement dated March 28, 2002, petitioner agreed to             
          accept a lump sum payment of $20,000 from Mr. Taylor in lieu of             
          the $32,000 owed to him under the terms of their stock purchase             
          agreement.  On April 2, 2002, petitioner received a final payment           
          from Mr. Taylor of $20,000.                                                 
               For taxable year 2001, Edgington Mullins prepared and sent             
          to petitioner a Schedule K-1 (Form 1120S), Shareholder’s Share of           
          Income, Credits, Deductions, etc.  The Schedule K-1 computed                
          petitioner’s share of Edgington Mullins’ income, credits and                
          deductions as if he was a 50-percent shareholder for the entire             
          taxable year as follows:  Ordinary income of $25,686, ordinary              
          dividends of $100, and a section 179 expense deduction of                   
               On his individual return for 2001, petitioner did not report           
          any of the items of income or deductions from the Schedule K-1.             
          Further, petitioner did not report a gain or loss from the sale             

               2  The Schedule K-1 relating to petitioner’s share of                  
          income, credits, and deductions also reported a charitable                  
          contribution deduction of $725 and an investment expense                    
          deduction of $100.  These items are deductible on a shareholder’s           
          Schedule A, Itemized Deduction.  However, petitioner claimed the            
          applicable standard deduction of $3,800 on his 2001 return, and             
          since these items would not provide petitioner any tax benefit,             
          they are not at issue.                                                      

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