National Industrial Investors, Inc. - Page 18

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            customers.  Petitioner stored this material until 1993, when it                            
            abandoned hope of reviving the two subsidiaries.                                           
                  The additional penalty asserted by respondent revolves                               
            around services performed by Far Western for International                                 
            Marketing Limited (IML) sometime in the mid-1980s.  On December                            
            28, 1989, after petitioner had liquidated Far Western, petitioner                          
            sent IML a bill for $57,100.  As payment IML gave petitioner a                             
            parcel of land, known as Lot 51.  To offset the value of Lot 51,                           
            petitioner issued IML a note for $38,000.                                                  
                  Although petitioner and its subsidiaries were accrual method                         
            taxpayers, they failed to include in income the amount due for                             
            services performed for IML.  Petitioner concedes that Lot 51 had                           
            a fair market value of $150,000, and concedes $112,000 of                                  
            services income for 1990.                                                                  
                  Respondent's primary contention is that there was no                                 
            business purpose for petitioner's deductions.  Respondent claims                           
            that petitioner deducted personal expenses of the Byrnes.                                  
            Respondent also asserts lack of substantiation in many instances.                          
            Because respondent contends that petitioner deducted personal                              
            expenses, failed to report services income, and failed to                                  
            maintain adequate records, she also asserts negligence.                                    
                  Petitioner replies that it deducted only business expenses                           
            that are substantiated by petitioner's books and in some cases by                          

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