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Before his Hoyt investment, petitioner had always prepared
his own tax returns. As a Hoyt investor, petitioner chose to
have his tax returns prepared by Laguna Tax Service, a Hoyt
organization.
On April 15, 1990, petitioner filed a 1989 Federal income
tax return and reported wage and business income of $10,898 and
$95,674, respectively. Durham issued petitioner a Schedule K-1
for the period ending September 30, 1989, which reported $81,440
as petitioner’s distributive share of Durham’s ordinary loss. On
a Schedule E, Supplemental Income and Loss, attached to his 1989
return, petitioner reported a partnership loss of $81,440.
During 1991, petitioner claimed and received refunds of
$14,607 and $16,998 for the taxable years 1987 and 1988,
respectively, as a result of carrying back the 1989 loss from
Durham to these prior taxable years.
In a notice of beginning of administrative proceeding (NBAP)
dated February 19, 1991, respondent notified petitioner that
Durham’s 1989 taxable year would be examined.
On April 29, 1991, petitioner filed a 1990 Federal income
tax return which reported business income of $52,941. Durham
issued petitioner a Schedule K-1 for the period ending September
30, 1990, which reported $175,560 as petitioner’s distributive
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