S. Clark Jenkins and Mary P. Jenkins - Page 2

                                          2                                           
               After concessions by the parties, the issues for decision              
          are:                                                                        
               (1) Whether payments made to North Carolina and Virginia               
          resulting from deficiencies in fertilizer products are deductible           
          ordinary and necessary business expenditures under section 162(a)           
          or nondeductible fines or penalties under section 162(f).  We               
          hold that the payments are deductible ordinary and necessary                
          business expenditures under section 162(a).                                 
               (2) Whether petitioners have substantiated amounts greater             
          than the amounts conceded by respondent.  We hold that they have            
          not.                                                                        
               All section references are to the Internal Revenue Code in             
          effect for the years in issue, and all Rule references are to the           
          Tax Court Rules of Practice and Procedure, unless otherwise                 
          indicated.                                                                  
                                  FINDINGS OF FACT                                    
               Some of the facts are stipulated and are so found.  We                 
          incorporate by reference the stipulation of facts and the                   
          attached exhibits.                                                          
               Petitioners were residents of Tarboro, North Carolina, when            
          the petition was filed.  S. Clark Jenkins (petitioner) owned 50             
          percent of W.S. Clark & Sons, Inc. (WSC), an S corporation.  The            
          dispute in this case stems from amounts paid by WSC to North                
          Carolina and Virginia resulting from deficiencies in fertilizer             
          products and deducted as ordinary and necessary business                    




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