- 7 -
have been reflected on Diamond's books as loans from
shareholders. The postincorporation amounts contributed by
Diamond shareholders were capital contributions which were not in
payment of section 1244 stock.
On February 28, 1987, Resthaven's parent corporation,
Developer and Management, Inc. (Developer), ceased operation and
merged with Resthaven. On March 1, 1987, Resthaven became an S
corporation. During 1987, when S corporation treatment was
elected for Resthaven, the deferred gross profits of the prior C
corporation were picked up and included in Resthaven's income
over the next 4 years. This occurred because Resthaven changed
from the installment to the cash method of tax accounting.
Resthaven included these "built-in gains" in income: $262,875,
$197,156, and $139,831 in 1987, 1988, and 1989, respectively.
Respondent determined that Resthaven paid some of
petitioners' personal expenses and that the amount of those
expenditures should be treated as dividend income to petitioners.
During the administrative proceeding, petitioner's accountant
discovered that Resthaven had unrecorded liabilities for 4,000
burial vaults. He conducted a sampling of invoices and
determined that $150 was the average cost of a burial vault and
that $50 was the cost of putting the vault into the ground.
Petitioner's accountant, accordingly, determined that Resthaven
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011