Northwestern Indiana Telephone Company - Page 1

                                       T.C. Memo. 1996-168                                             

                                     UNITED STATES TAX COURT                                           

                   NORTHWESTERN INDIANA TELEPHONE COMPANY, Petitioner v.                               
                        COMMISSIONER OF INTERNAL REVENUE, Respondent                                   
                   ROBERT G. MUSSMAN AND MYRTIS MUSSMAN, Petitioners v.                                
                        COMMISSIONER OF INTERNAL REVENUE, Respondent1                                  

                  Docket Nos. 7970-91, 7971-91.     Filed April 2, 1996.                               

                        R determined that NITCO, a local telephone                                     
                  company, unreasonably accumulated its earnings and                                   
                  profits and, therefore, was subject to accumulated                                   
                  earnings tax.  R further disallowed business deductions                              
                  NITCO claimed for legal expenses and determined that                                 
                  NITCO was liable for certain additions to tax.                                       
                        R determined that M, NITCO’s president and major                               
                  shareholder, had constructive dividend income and that                               
                  M and M’s wife were liable for certain additions to                                  
                        1.  Held:  NITCO is liable for accumulated                                     
                  earnings tax because its accumulated earnings exceeded                               
                  its reasonable business needs and NITCO was availed of                               

            1This Court granted petitioners' motion to consolidate.                                    

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