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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
$6,282.2
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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Last modified: May 25, 2011