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Background
Petitioners jointly filed Federal income tax returns for
2001 and 2002. Petitioners attached a Schedule E, Supplemental
Income and Loss, to each return. On their Schedule E for 2001,
petitioners reported $534,424 of total income. The only item
reported on the Schedule E was nonpassive income from Gold Coast
Medical Services (Gold Coast), a partnership. On their Schedule
E for 2002, petitioners reported $345,546 of total income. As in
2001, the only item petitioners reported on their 2002 Schedule E
was nonpassive income from Gold Coast.
During February 2004 petitioners prepared and filed Forms
1040X, Amended U.S. Individual Income Tax Return, for 2001 and
2002. On the Form 1040X for 2001, petitioners reported a
$990,700 reduction in adjusted gross income, as well as
associated increases in exemptions and itemized deductions. On
the Form 1040X for 2002, petitioners reported a $165,116
reduction in adjusted gross income, as well as associated
increases in exemptions and itemized deductions. Petitioners
attached amended Schedules K-1, Partner’s Share of Income,
Credits, Deductions, etc., to their Forms 1040X for 2001 and
2002. The amended Schedules K-1 reveal that the sole cause for
the reduced income, increased exemptions, and increased itemized
deductions reported on petitioners’ 2001 and 2002 Forms 1040X was
a reduction in petitioner Larry J. Wadsworth’s (Mr. Wadsworth)
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Last modified: May 25, 2011