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A. Factual Background
Petitioners resided in Florida at the time the petition was
filed. At all times relevant to the following discussion,
petitioner was the sole shareholder of H & S Swansons' Tool
Company (hereinafter, Swansons' Tool), which has operated as a
Florida corporation since 1983.2 Swansons' Tool elected to be
taxed as a subchapter S corporation effective in 1987.
Swansons' Tool is in the business of building and painting
component parts for various equipment manufacturers. As a part
of these activities, Swansons' Tool manufactures and exports
property for use outside the United States.
1. The DISC and IRA #1
Following the advice of experienced counsel, petitioner
arranged in the early part of January 1985 for the organization
of Swansons' Worldwide, Inc., a domestic international sales
corporation (hereinafter the DISC or Worldwide). During this
period, petitioner also arranged for the formation of an
individual retirement account (hereinafter IRA #1).
The articles of incorporation for Worldwide were filed on
January 9, 1985, and under the terms thereof petitioner was
named the corporation's initial director. Shortly thereafter,
2
Initially organized as a corporation in the State of
Illinois, Swansons' Tool was subsequently merged into a newly
formed Florida corporation of the same name on Dec. 30, 1983.
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