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earn interest. CAI also had a set-off account, an escrow
account, and a collateral account.
CAI's funds at the Bank earned interest in the amounts of
$15,582, $75,224, and $16,858 in 1980, 1981 and 1982,
respectively. Petitioners did not report any interest income
from the Bank on their 1980, 1981, or 1982 returns. Respondent
determined that petitioners' gross income for the subject years
included half of the interest earned in each year.
5. Petitioners' Use of BarSon and CAI Funds
In February 1979, petitioners purchased a home in Rye,
New York, for approximately $160,000. In 1980, they used $18,635
of BarSon's funds to pay for work performed on that home.
Petitioners sold their home in Rye, New York, in July 1994, for
approximately $455,000. Respondent determined that petitioners
received an $18,635 constructive dividend from BarSon in 1980, on
account of their use of its funds to pay for work done to their
home. Respondent determined that BarSon's accumulated earnings
and profits (E&P) were $1,322,644 on March 31, 1981.
BarSon reported that it paid $20,000 in business-related
legal fees to Finley Kumble in 1980 and 1981. Finley Kumble
rendered legal advice to petitioners on personal matters
including the registration requirements for acquiring a boat,
financing the purchase of a house in New York, and preparing a
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