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Respondent's Reconstruction of Ms. Davis' and Flair's Income
Ms. Davis was a "nonselling" real estate broker licensed by
the State of Oklahoma; she worked in the Oklahoma City area. Ms.
Davis conducted her real estate operations primarily through
Flair, an Oklahoma corporation. Flair was a cash method taxpayer
that used the calendar year to compute its taxable income.3
Flair filed an election under section 1362 to be treated as
an S corporation on January 6, 1986, and filed a U.S. Income Tax
Return for an S Corporation (Form 1120S) for the year 1989.
There is no evidence that Flair's S corporation election was
terminated. Ms. Davis owned 60.55 percent of the stock in Flair
during 1989. There is no evidence that Ms. Davis' percentage of
stock ownership in Flair changed during the years in issue.
Flair did not file tax returns for the years in issue.
Respondent used a bank deposits analysis to reconstruct
Flair's gross receipts. Flair deposited its gross receipts into
three bank accounts at First Enterprise Bank, Oklahoma City,
Oklahoma.
Ms. Davis was the president of Flair and was responsible for
the overall operations of the real estate company. Flair
deposited corporate funds in the amounts of $45,325 and $47,550
into Ms. Davis' personal bank account at First Enterprise Bank
during the years 1990 and 1991, respectively. Ms. Davis used the
3 Unless otherwise noted, all descriptions of Flair pertain
to the 1990 and 1991 tax years.
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Last modified: May 25, 2011