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its shareholders, by permitting its earnings and profits to
accumulate rather than to be divided and distributed, and was
thus liable for the accumulated earnings tax imposed by section
531.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Knight Furniture Co., Inc., is a corporation with its
principal place of business in Sherman, Texas. Petitioner
operates two furniture stores. Petitioner’s main store is
located in Sherman, Texas, and its other store is located in
Gainesville, Texas.
During the years in issue, petitioner’s officers were Jim
Hughes as chairman, Sam Knight as president, Henry Griffin as
vice president, and David Gunn as treasurer. David Pedigo served
as secretary in 1995 but was removed and replaced by David Gunn,
who served as both secretary and treasurer in 1996 and 1997.
David Pedigo remained an employee of petitioner even though
he was removed from the board in January 1996. He received the
same annual salary of $50,000 but was no longer eligible for
management bonuses. The board also removed David Pedigo from
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