-6-
further concluded that the majority ($81,896) of the increase
should be treated as loans, as should all balances existing prior
to 1982. All issues arising from that examination (for both
petitioners and Delivery) were ultimately settled by execution of
two Forms 870-AD (one for petitioners individually and the second
for Delivery) by petitioners and a representative of respondent’s
Kansas City Appeals Office on June 1, 1990.
Shortly after the settlement, petitioners’ accountant (Mr.
Arthur) wrote off $527,428 against the corporation’s retained
earnings. The $527,428 represented the balances in the following
12 accounts (which reflected withdrawals either by or for the
benefit of petitioners):
Title Amount
Joe Schneller $ 70,125
Farm 163,694
S & S Oil 16,646
Jim Schneller 11,500
Cattle 34,967
Oil wells 3,700
Barnard Realty 46,031
Transportation management 5,585
Payable to Marilyn Schneller (23,856)
Insulating coating 54,656
BG Beer 8,200
Investment-BG Beer 136,180
TOTAL $527,428
Respondent does not challenge $51,065 of the $527,428 written off.
Respondent does, however, challenge $476,363 of the writeoff on the
grounds that the 12 accounts had consistently been carried on the
corporate books as loans, and petitioners never included any part
of the $476,363 in their personal income. Petitioners were solvent
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