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partnerships and claimed a Schedule E loss in the
amount of $220,695.00 on their Form 1040 joint income
tax return. Mr. and Mrs. Korchak’s Form 1040 for 1982,
together with schedules, consists of 36 pages! There
were also losses and investment credits for Schedule C
activity for rental of buses that generated a loss
deduction of $24,961.00, and net short-term and long-
term loss deductions for U.S. Treasury Bills. The
Schedule E deductions consisted of a $64,753.00 loss
from Kelly-Brock Drilling Partners, a $57,087.00 part-
nership loss from Odyssey Partners, a $10,036.00 part-
nership loss from Matagorda Ltd., a $58,089.00 partner-
ship loss from Madison Recycling Associates, and a
$30,010.00 loss from two rental properties. From all
those various, sophisticated investments, the Internal
Revenue Service disallowed only the loss deduction from
Madison Recycling Associates, which resulted in the
deficiency at issue.
In 1988, Ernest showed Helen a February 16, 1988
Notice from the Internal Revenue Service disallowing
the Madison Recycling Associates loss claimed on their
1982 income tax return. Until then, Helen had no
awareness or knowledge of Ernest’s various investments.
Helen’s only knowledge about the 1982 income tax return
was to provide Ernest with a copy of her W-2 reporting
wages in the amount of $15,339.00. As of today, the
disallowed Madison Recycling Associates loss and tax
credits, with interest and penalties, result in an
asserted deficiency exceeding two and one half million
dollars ($2,500,000). The potential tax liability
exceeds the net value of the Korchak’s assets. At age
67, Helen could be faced with Internal Revenue Service
collection activity that could levy upon her entire
pension benefits and her home - a terrible hardship for
reporting her $15,339.00 wages on a joint income tax
return. * * *
* * * * * * *
• Her husband purchased interests in various part-
nerships and only the loss deduction from one
investment, Madison Recycling Associates, was
disallowed
• Funds for the purchase came from her husband’s
income
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