Ellwest Stereo Theatres of Memphis, Inc., et al. - Page 10

                                                 - 10 -                                                    
            payments.  Thereafter Shindel had Modern personnel compile a                                   
            summary of all the payments to foreign companies that he could                                 
            trace, and presented it to Petzold.   Under Shindel's                                          
            instructions, Modern also prepared Forms 1042 on behalf of four                                
            petitioners to report payments made between 1980 and 1991 to                                   
            Caribbean Films, European Investments, and Petro Land Drilling                                 
            & Development.  Shindel was unable to secure the signature of a                                
            corporation officer for any of these forms, however.  The                                      
            unexecuted Forms 1042 were mailed to the IRS on June 4, 1993, but                              
            without authorized signatures they were invalid, and the IRS did                               
            not file them.  No Forms 1042 were submitted for the payments to                               
            Fun Films in 1985 by the other eight petitioners. This was                                     
            because Shindel had concluded that if these payments constituted                               
            loans, no reporting would have been required.  Notices of                                      
            deficiency were mailed to petitioners on December 8, 1993.                                     
            Additions to Tax Under Sections 6651 and 6656                                                  
                  An addition to tax is imposed under section 6651 for failure                             
            to file a return within the prescribed period, unless it is shown                              
            that such failure was due to reasonable cause and not due to                                   
            willful neglect.  Sec. 6651(a)(1).  Form 1042 constitutes a                                    
            return for purposes of this section.  Secs. 6651(a)(1), 6001;                                  
            sec. 1.1461-2(e), Income Tax Regs.  The amount of the addition is                              
            5 percent of the amount required to be shown as tax for each                                   
            month that the delinquency persists, up to a maximum of                                        

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