Inverworld, Inc., et al. - Page 6

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                  1  50 percent of the interest due on the deficiency.                                    
                  Respondent determined deficiencies in and additions to LTD's                            
            Federal income taxes as follows:2                                                             
                              InverWorld, Ltd., Docket No. 3444-93                                        
                                     Additions to Tax                                                     
            Tax Year                        Sec.         Sec.           Sec.        Sec.                  
            Sec.                                                                                          
            Ended         Deficiency   6651(a)(1)   6653(a)(1)(A)  6653(a)(1)(B)   6655                   
            6656                                                                                          
            June 30, 1987  $2,060,490    $515,123      $103,025         1        $101,169  $206,049       
            June 30, 1988   2,299,853     574,963       114,993         1         128,503   229,985       


            2                                                                                             
                  Respondent sent LTD a notice of liability for withholding                               
            tax and a notice of deficiency in corporate income tax, each                                  
            dated Sept. 7, 1990, for its taxable years ended 1984, 1985, and                              
            1986.  LTD timely filed a petition with this Court contesting                                 
            respondent's determinations in the notice of liability.  LTD                                  
            attached the notice of liability to its petition but did not                                  
            attach the notice of deficiency.  In its petition, LTD did not                                
            refer to or dispute any of the deficiencies in corporate income                               
            tax determined in the notice of deficiency.  Because LTD failed                               
            to contest the determinations in the notice of deficiency,                                    
            respondent, on Feb. 6, 1991, assessed the amounts of the tax,                                 
            additions to tax, and interest for LTD's taxable years ended                                  
            1984, 1985, and 1986, as determined in the notice of deficiency.                              
                  After the period for filing a petition with respect to the                              
            notice of deficiency had expired, LTD filed a motion for leave to                             
            file amendments to its petition contesting the notice of                                      
            liability, pursuant to Rule 41(a).  In InverWorld, Ltd. v.                                    
            Commissioner, 98 T.C. 70 (1992), affd. 979 F.2d 868 (D.C. Cir.                                
            1992), we held, inter alia, that, because each notice must be                                 
            considered independently for purposes of jurisdiction, this Court                             
            did not acquire jurisdiction over the corporate income tax                                    
            deficiencies determined in the notice of deficiency by virtue of                              
            a petition which contested only the withholding tax                                           
            determinations in the notice of liability.                                                    
                  Respondent then assessed and collected $7.7 million of LTD's                            
            corporate income tax deficiencies and additions to tax.  In the                               
            U.S. District Court for the District of Columbia, LTD has                                     
            commenced a refund action, InverWorld, Ltd. v. United States,                                 
            Civil Action No. 93-1704-LFO (D.D.C., filed Mar. 11, 1994), which                             
            has been stayed pending resolution of the instant case.                                       




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