- 3 -
At the time they filed their joint petition, the Broadaways
resided in Bono, Arkansas, and the Camerons resided in Jonesboro,
Arkansas. Petitioners were shareholders in Company during the
taxable years at issue. Company is engaged in the road and
highway construction business. Company calculated its income
from construction contracts under the completed contract method
of accounting. Accordingly, it was required by section
312(n)(6)1 to compute its earnings and profits as if it used the
percentage of completion method of accounting. Company elected
to be taxed as an S corporation, pursuant to section 1362(a),
effective following the close of its taxable year ended
October 31, 1988. As an S corporation, Company's first tax year
was a short year ending December 31, 1988, and Company thereafter
reported on a calendar year basis.
At some time during its 1989 taxable year, Company made a
distribution to petitioners. The distribution is taxable to
petitioners as a dividend to the extent of the accumulated
earnings and profits of the Company existing on December 31,
1989. The parties have specified four alternatives:
(1) If Company's earnings and profits must be computed as
of the end of each taxable year on the basis of reasonable
contemporaneous estimates of the costs to complete its
1 Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable years at
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011