Santa Monica Pictures, LLC, Perry Lerner, Tax Matters Partner - Page 322

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          distribution from Corona to SMP.  As a result of Imperial’s                 
          purchase of SMP’s membership interest in Corona, Corona’s capital           
          accounts and percentage interests were restated as follows:                 
                         Capital Account      Percentage Interest                     
               Imperial       $1,240,000          79.20%                              
               SMP            310,000                  19.80                          
               Mr. Lerner     5,000                0.33                               
               Peridon Corp.        10,000                0.67                        
               Total          $1,565,000               100.00                         

               On its November 5 to December 15, 1997, partnership tax                
          return, Corona reported Imperial’s initial purchase of SMP’s                
          interest as a $64,130,364 capital reduction by SMP and a                    
          $64,130,364 capital contribution by Imperial.  Corona reported              
          these amounts at tax values, not accounting book values.  On its            
          tax return for the taxable year ended December 31, 1997, SMP                
          reported the sale of its interest in Corona to Imperial as                  
          follows:                                                                    
                         $1,252,000  Sales price                                      
                         63,489,061  Basis                                            
                    (62,237,061) Long-term capital loss                               
          The $62,237,061 loss that SMP reported flowed through to                    
          Somerville S Trust and then through to Mr. Ackerman, who claimed            
          it on his tax return.                                                       
               4.  Additional Purchase of SMP’s Interest in Corona                    
               On December 23, 1997, Imperial purchased from SMP an                   
          additional 14.65-percent interest in Corona pursuant to an                  
          amendment to purchase agreement.  With this purchase, Imperial              





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