Northwestern Indiana Telephone Company - Page 45

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                  extension of the statute for purposes of audit.  In our                              
                  view, the time pressure you face for the year 1987 is                                
                  the product of your (or your supervisor's) decision to                               
                  open 1987 with so little time remaining on the statute.                              

                  Respondent subsequently notified NITCO of the proposed                               
            determination against NITCO with respect to accumulated earnings                           
            tax liability for 1987, 1988, and 1989.  NITCO chose not to                                
            respond and did not file a statement concerning the grounds on                             
            which it relied to establish that its earnings were accumulated                            
            to meet its reasonable business needs.8                                                    
                  In April 1991, respondent issued respective notices of                               
            deficiency to Mr. and Mrs. Mussman for 1988 and 1989, and to                               
            NITCO for 1987, 1988, and 1989.  With respect to the accumulated                           
            earnings tax liability asserted against NITCO, the notice of                               
            deficiency issued to NITCO stated, in pertinent part:                                      

                  10(b.) Section 531 Tax                                                               
                  It is determined that you were availed of for the                                    
                  purpose of avoiding the income tax with respect to your                              
                  shareholders by permitting earnings and profits to                                   
                  accumulate instead of being divided or distributed                                   
                  during the taxable years 1987, 1988, and 1989.                                       
                  Accordingly, the accumulated earnings tax provided by                                
                  Section 531 of the Internal Revenue Code is being                                    
                  asserted for 1987, 1988, and 1989.  In determining your                              
                  accumulated earnings credit under the provisions of                                  
                  section 535 of the Internal Revenue Code, your failure                               
                  or refusal to respond to the notification sent to you                                
                  by certified mail on January 15, 1991 pursuant to                                    
                  [section] 534(b) explaining the capital needs of your                                
                  business has been considered.  Therefore, accumulated                                

            8As a result, in the instant cases, NITCO has the burden of                                
            proof in establishing that it is not liable for the accumulated                            
            earnings tax liabilities determined against it by respondent in                            
            the notice of deficiency.  See sec. 534(a)(2).                                             



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