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business activity includes the manufacture and retail sale of
lumber and building products. On December 31, 1986, Marriner
Lumber made an election to be taxed as a “small business
corporation” (S corporation) under section 1366. In 1990 and
1991, Marriner Lumber had approximately 50 employees and gross
receipts of $5,244,932 and $4,491,418, respectively. During this
same time, Mr. Lamb was president of Marriner Lumber and owned
50.6670 percent of its outstanding stock. Neil Lamb, Mr. Lamb’s
son, owned the remaining stock outstanding. Mr. Lamb worked at
Marriner Lumber approximately 15 to 20 hours per week during 1990
and 1991 and received an annual salary of $31,772. For the
taxable years 1990 and 1991, Mr. Lamb’s shares of the subchapter
S profits from Marriner Lumber were $23,831 and $25,610,
respectively.
In 1989, Mr. Lamb acquired the Oregon Bow Co. (Oregon Bow)
in Junction City, Oregon. During 1990, Mr. Lamb spent 4 weeks
actually working in Oregon. The remainder of his work for Oregon
Bow was conducted by telephone from Maine. Mr. Lamb received a
salary from Oregon Bow of $21,302.16 for 1990.
On March 26, 1990, Mr. Lamb incorporated Marriner Lumber
Home Centers, Inc. (MLHC), in Brunswick, Maine. On the same
date, MLHC elected to be taxed as an S corporation. MLHC’s
business activity involves the retail sale of lumber and other
building products. During 1990 and 1991, Mr. Lamb was president
of MLHC, owned 75 percent of its stock outstanding, and devoted
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