- 13 - information returns. Therefore, the rationale for treating the returns of passthrough entities as adjuncts to an individual’s returns is not present in the case of a subchapter C corporation’s income tax return. Respondent was not required to examine the returns of ERG, a subchapter C corporation, to determine whether the Bensons disclosed items of gross income. B. Disclosures on Returns Were Not Adequate to Apprise the Secretary of the Nature and Amount of Omitted Income 1. Royalties and Engineering Services The Bensons argue that the returns of NPI disclosed royalty and engineering service payments from ERG that we previously found to be constructive dividends to the Bensons. Quoting Colony v. Commissioner, 357 U.S. 28 (1958), the Bensons argue that respondent had “no ‘special disadvantage in detecting errors’” because these items were disclosed on the corporate returns. Respondent argues that the returns do not adequately disclose the transfers and mischaracterized the transfers. A misleading disclosure on a return is insufficient to apprise the Commissioner of the nature and amount of an item for purposes of section 6501(e)(1)(A)(ii). Estate of Fry v. Commissioner, 88 T.C. 1020 (1987). In our prior opinion, we stated: On or about March 10, 1990, Burton executed as president of both NPI and ERG, a document entitled “Agreement of Sale and Exclusive License” (exclusive license agreement). The document had a retroactive effective date of July 1, 1987, and a 40-year term.Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Next
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