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Kabeiseman & Harp, Inc.
On February 6, 1989, petitioner and Robert Kabeiseman (Mr.
Kabeiseman) formed Kabeiseman & Harp, Inc. (K & H) as an Oregon
corporation to engage in the residential construction business.
During the years at issue, K & H operated from an office located
in Hillsboro that it shared with Charles Harp Construction. K &
H elected to be taxed as an S corporation.
During the years at issue, petitioner and Mr. Kabeiseman
each owned 50 percent of the issued and outstanding stock of K &
H and were its only officers and directors. During those years,
petitioner served as the president of K & H and in that capacity,
inter alia, arranged for the financing of its construction
projects and supervised the progress of such projects. Mr.
Kabeiseman served as the treasurer and secretary of K & H during
the years at issue and in those capacities, inter alia, main-
tained its books and records, including its general ledger and
job cards, and prepared its checks to pay for corporate expendi-
tures. Neither petitioner nor Mr. Kabeiseman received a salary
from K & H during 1989 or 1990.
During the years at issue, K & H financed its activities by
obtaining construction loans from the Portland branch of Washing-
ton Federal (K & H construction loans), a financial institution
at which K & H did not maintain a checking account. Those loans
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