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2. Why didn’t respondent summarily assess employment taxes
that petitioner should have withheld and paid over in respect of
the Endotronics shares petitioner caused to be paid to its
employees as compensation?2
3. Why didn’t respondent’s statutory notice, rather than
asserting, as an alternative to disallowing the compensation
deduction claimed by petitioner, that petitioner had “taxable
1(...continued)
v. United States, 15 Cl. Ct. 38 (1988)); (2) Petitioner’s chief
executive officer, owning 49.95 percent of its stock (the parties
have stipulated that he directed and controlled all aspects of
petitioner’s activities), signed petitioner’s return, which
claimed the corporate deduction as a miscellaneous deduction for
“consulting” and did not report on the officers’ salary schedule
on p. 2 of the return the compensatory shares received by him and
petitioner’s other officers, even as petitioner was not reporting
on the same return its compensation income on receipt of a much
larger number of Endotronics shares and he was not reporting on
his own return his personal income on the shares received by him
as compensation.
2 The parties have stipulated that petitioner did not issue
W-2 Forms or Forms 1099 disclosing the payments of the
compensatory shares to its employees. It seems likely that
petitioner omitted the value of the Endotronics shares from the
amounts of compensation paid to its employees from the Forms 941
that it was required to file with respect to employment taxes
under subtitle C, chapter 24 of the Code.
In addition, petitioner may well have caused Endotronics,
which became controlled by petitioner under the terms of the plan
of reorganization approved by the bankruptcy court, not to file a
Form 1099 for the 7,650,000 shares that Endotronics issued to
petitioner, including the portion of those shares issued, at
petitioner’s direction, to petitioner’s employees, as
compensation to petitioner for its commitments to provide
management services and necessary financing. The plan of
reorganization discloses that more than 3 months before issuance
of the shares petitioner’s treasurer had been named chief
financial officer of Endotronics.
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