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On Schedule E of these returns, Sparkman reported income or
loss from HEH and Mercury Solar PTO as follows:
HEH Mercury Solar PTO
1996 ($63,200) $74,985
1997 (66,000) 70,062
1998 (46,003) 51,130
1999 (56,654) 53,110
2000 (68,191)1 126,747
1 The $68,191 loss nets two items shown on Sparkman’s
2000 Schedule E: a $75,000 deduction or loss from HEH,
and $6,809 “Other income” from HEH.
On September 4, 2001, Sparkman filed an amended return for
his 1999 tax year. On Schedule E of this amended return, he
reported losses from HEH in the amount of $54,400, income from HEH
in the amount of $37,930, and income from Mercury Solar PTO in the
amount of $60,766.
Mercury Solar PTO filed Federal income tax returns for the
years 1996 through 1998 on or around July 26, 2000, and returns
for the years 1999 and 2000 on or around March 27, 2001. On
July 24, 2003, it filed amended returns for the tax years 1996
through 1998. For all years in issue, it filed Forms 1041, U.S.
Income Tax Return for Estates and Trusts. In the entity
classification section for each of Mercury Solar PTO’s returns,
the box for “Complex trust” is checked. Attached to Mercury Solar
PTO’s tax returns are Schedules K-1. For each year at issue
except for 1999, the Mercury Solar PTO tax return includes a
single Schedule K-1 showing income distributions to Sparkman in
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