- 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 ResthavenPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
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