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On June 13, 1991, respondent notified petitioner in writing
that petitioner was under audit for fiscal years 1987, 1988, and
1989. On June 14, 1991, Saul sent petitioner an Information
Document Request (IDR). In it, Saul noted that the only issue
Saul was considering was the amortization of film rights for 1987
to 1990. The IDR led petitioner to believe that respondent would
not pursue the section 531 issue. Saul did not consider
asserting section 531 against petitioner then because he did not
believe the section 531 issue was strong for respondent. Saul
told Hochheiser that he leaned against pursuing the section 531
issue. However, after meeting with a reviewer in early August
1991, Saul concluded that respondent should assert the section
531 issue against petitioner on the assumption that Windsor
had substantial liquidity and no plans to expand and because
Hochheiser did not mention expansion plans after Saul briefly
mentioned section 531. Saul did not ask petitioner's owners
or Hochheiser about whether petitioner needed to accumulate
earnings. Saul did not ask to see petitioner's board minutes.
On August 19, 1991, Saul told Hochheiser that he would
assert the section 531 issue because he believed petitioner had
no reasonable needs to accumulate earnings and the 3-year
period to assess tax was about to expire. On August 29, 1991,
respondent issued notices to petitioner under section 534(b)
proposing to assert accumulated earnings tax for each year in
issue. On August 30, 1991, respondent issued a notice of
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