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Year Deficiency Penalty
1991 $209,006 $41,801
1992 192,075 38,415
1993 204,804 40,961
After concessions, the issues for consideration are:
(1) Whether the royalties paid to Dharma Mudranalaya for certain
intangible assets were reasonable in amount, (2) whether
petitioner is entitled to deduct net operating loss carryovers in
taxable years 1991 and 1993, (3) whether petitioner must increase
gross sales by $7,095 in taxable year 1992, and (4) whether
petitioner is liable for a section 6662(a) accuracy-related
penalty for each of the years in issue.
FINDINGS OF FACT
Petitioner had its principal place of business in Oakland,
California, at the time the petition in this case was filed.
Petitioner operates a sheet-fed, lithographic commercial printing
business and provides typesetting, prepress, printing, and
binding services. Petitioner also prints religious calendars,
postcards, and greeting cards through its Amber Lotus division.
Petitioner claimed deductions under section 162(a) for the
payments to Dharma Mudranalaya (DM), a related entity, pursuant
to a license agreement for certain intangible assets in taxable
years ending May 31 as follows:
Year Deduction Claimed
1989 $648,000
1990 785,000
1991 680,817
1992 854,840
1993 788,189
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