- 9 -
The loans to the Posas and Navars, in the principal amounts
of $15,000 and $10,000, respectively, have been paid. As of the
date of filing of the petition, the Fosses still held a note
issued by Canterbury on which they were receiving interest
payments.
As a result of the earlier lawsuit, WSAI turned its books
and records over to the South Wood Estates Condominium
Association. Petitioner has not recovered the books and records
of WSAI from the Association.
Corporation tax and transferee issues
On or around March 1, 1994, respondent sent petitioner, as
transferee of WSAI, a 30-day letter, with a report of income tax
examination and explanation of items, asserting for the taxable
year 1988 that WSAI had taxable income of $272,320, resulting
from gross receipts of $1,068,000 from the sale of the South Wood
condominium units,8 based on the retail sales prices as
determined by the transfer taxes paid, less costs and expenses of
$795,680.9 The report took the position that WSAI owed 1988 U.S.
8Respondent excluded the two units transferred to petitioner
from the calculation of gross receipts.
9Respondent relied on the Cohan rule to provide what
respondent regarded as a reasonable allowance for costs and other
expenses in lieu of substantiating documents. See Cohan v.
Commissioner, 39 F.2d 540 (2d Cir. 1930). Respondent arrived at
the $795,680 figure for costs and expenses by allowing $715,000
of construction loan proceeds (cf. our findings supra p. 3),
$70,000 as the cost of the land, and $10,680 as expenses of the
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011