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C. Petitioner’s 2001 Federal Income Tax Return
Petitioner’s Form 1040, U.S. Individual Income Tax Return,
for 2001 (2001 return) reported that he, not Dr. Karason or KCPI,
purchased Dr. Flom’s medical equipment. Petitioner’s Form 4562,
Depreciation and Amortization, reported that he paid $27,000 for
the medical equipment, made a section 179 election to expense
$24,000 of the equipment’s cost, and claimed an additional $6003
depreciation deduction. He also reported a depreciation
deduction of $994 for other medical equipment purchased prior to
Dr. Karason’s purchase of the podiatry practice.
Petitioner’s Schedule C, Profit or Loss From Business,
reported that he leased the medical equipment to KCPI and
received $16,662 as gross rents from KCPI, which equaled the
amount of KCPI’s 2001 loan payments to Farmers Bank. After
deducting a total of $25,594 for section 179 expense and section
167 depreciation deductions and $2,307 interest expense on the
Farmers Bank loan, petitioner claimed on the Schedule C a net
loss of $11,239.
Petitioner and Dr. Karason did not enter into a written
agreement memorializing either the purported sale of the medical
equipment to petitioner or the lease of the medical equipment to
3 Petitioner listed $3,000 of the cost of the medical
equipment as 5-year property on Part II, MACRS Depreciation for
Assets Placed in Service Only During Your 2001 Tax Year, Section
B--General Depreciation System, of Form 4562, Depreciation and
Amortization.
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Last modified: November 10, 2007