- 16 -
During these years, petitioner paid the following dividends:6
Taxable
Year Ended Dividends
July 31 Mr. Laviano Mr. Woll John Laviano
1983 -0- -0- -0-
1984 $5,500 $4,000 $500
1985 35,750 26,000 3,250
Total 41,250 30,000 3,750
Petitioner’s retained earnings increased by approximately
1,525 percent from $62,903 on July 31, 1983, to $959,582 on
July 31, 1985. Its shareholder’s equity increased by 1,503
percent from $63,903 on July 31, 1983, to $960,582 on July 31,
1985. Even though petitioner had a cash surplus on July 31,
1985, petitioner was retaining these funds for business reasons.
7. The Officers' Other Entities
The Officers, jointly or individually, were engaged in other
activities aside from their interest in petitioner. They were
equal partners in a partnership that was formed to increase their
market share in petitioner's industry, and to allow for volume
discounts on purchases.
Petitioner used the services of the other entities that were
entirely owned by the Officers. Services performed by these
other entities included financial, marketing, and management
consulting. Petitioner, through the Officers, devoted some of
6 Components paid dividends of $12,500 in its taxable year
ended Nov. 30, 1980, and $8,000 in its taxable year ended
Nov. 30, 1981.
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