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to as the Christies) resided in Aurora, Oregon, at the time the
petition was filed in docket No. 20363-94. Dura-Craft, Inc., is
a C corporation which maintained its principal place of business
in Newberg, Oregon, at the time the petition was filed in docket
No. 20560-94. During the years at issue, the Chapmans and the
Christies prepared their respective joint Federal individual
income tax returns using the cash receipts and disbursements
method of accounting, and Dura-Craft prepared its Federal
corporate income tax returns using an accrual method of
accounting.
This case involves three closely held corporations and their
shareholders. Northwest Purchasing, Inc. (Northwest), is a
subchapter S corporation which is owned equally by David Christie
and Milo Chapman. Northwest sells raw materials to Dura-Craft at
Northwest's cost, plus a 5-percent processing fee. During the
years at issue, Dura-Craft was owned by Milo Chapman (25 percent)
and David Christie (75 percent). Dura-Craft manufactures doll
house kits and sells these kits exclusively to Springbrook.
During the years at issue, Springbrook was owned by Milo Chapman
(75 percent) and David Christie (25 percent). Springbrook
markets the doll house kits to various outside retailers such as
Fred Meyer and Payless.
During the years at issue, Milo Chapman was an employee of
Springbrook, and David Christie was both an officer and an
employee of Dura-Craft. Milo Chapman controlled all of the
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