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pro rata share of ordinary income from S corporations. This
increase is derived from Schedules K-1 and is composed of two
components. One relates to Alofs and the other to Excellence.
The Schedule K-1 for Alofs for FYE 1995 shows Mr. Gleason’s
share of ordinary income from the trade or business as $470,814.
Petitioners reported on Schedule E of their 1995 return only
$296,614 from Alofs. Nothing in the record elucidates the
$174,200 difference, and petitioners did not address the
discrepancy at trial or on brief. Thus, absent any demonstrated
basis for exclusion, the Court concludes that petitioners’ income
for 1995 must be increased by $174,200.
The remaining portion of the increase alleged by respondent
stems from the Schedule K-1 for Excellence’s FYE 1996. This
Schedule K-1 shows $257,328 of ordinary income from the trade or
business and $7,043 of interest income. Petitioners did not
report these amounts on their original returns for either 1995 or
1996. Respondent takes the position that because Mr. Gleason
sold his interest in Excellence near the end of 1995, the
$264,371 should be treated as received in a short taxable period
ended in 1995 and, accordingly, reported in that year.
Petitioners do not directly dispute respondent’s position. On
brief they merely point out that they included the $264,371 on
their “amended 1996 tax return”. The revised Form 1040 for 1996
attached to petitioners’ Forms 1040X for each of the years 1993
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