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aggregated with the other payments for petitioner's benefit as
corporate distributions.
The parties are in agreement that GAPS was not a de jure
corporation until March 1989. Petitioners also argued that GAPS
was not a de facto corporation before the date of incorporation.
Although petitioners did not explain the effect of this argument
on their case, we assume that petitioners' argument is that
earnings of the group employee benefit plan business carried on
in the name of GAPS during January and February 1989 could not
increase earnings and profits because GAPS was not in
existence.14 Petitioners' argument also implies that any GAPS's
payments to petitioner during January and February could not be
corporate distributions because GAPS had no corporate existence
during that period.
Petitioners' argument is not persuasive. An enterprise
that conducts business in a corporate manner and files U.S.
corporation income tax returns may be subject to income tax, even
if its incorporation was ineffective under State law. United
14Petitioners' argument could be a two-edged sword. First,
it would seem to rule out any decrease in GAPS's earnings and
profits during January and February 1989 because the corporation
was not in existence. Therefore, if GAPS had more expenses
during January and February than income, the earnings and profits
of GAPS for 1989 would actually be higher if we were to find that
GAPS was not in existence during those 2 months. Second, if GAPS
was not taxable as a corporation between Jan. 1 and Feb. 28,
1989, then the income for those 2 months should be taxable as
sole proprietorship income on the Mancusos' personal return.
They reported no such income on their 1989 Form 1040.
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