Collin L. Dugan - Page 3

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          notices of deficiency were issued and the petition was filed, as            
          well as for costs incurred thereafter, we consider petitioner's             
          motion as a motion for administrative and litigation costs.                 
                                     Background                                       
               Petitioner and Wanda M. Dugan are husband and wife who filed           
          joint Federal income tax returns for the years 1988 and 1991.               
          They resided in Greenbrier, Tennessee, at the time the petition             
          was filed.                                                                  
               From 1986 until the fall of 1990, Mrs. Dugan owned and                 
          operated Nanna's Treasures, a sole proprietorship through which             
          she designed, produced, and offered for sale ornate party and               
          pageant apparel and accessories for young women.  On September 5,           
          1990, Mrs. Dugan incorporated Nanna's Treasures, Inc. (NTI) with            
          the assistance of Kelly Frey, an attorney.  The corporation was             
          organized to continue the business of Nanna's Treasures.  Mrs.              
          Dugan was NTI's sole shareholder.  NTI did not conduct any                  
          business until January 1, 1991.  Sometime prior to March 15,                
          1991, a Form 2553, Election by a Small Business Corporation, was            
          prepared by Mr. Frey, and signed by Mrs. Dugan as the sole                  
          shareholder and president of NTI.  On the Form 2553 Pamela                  
          Tidwell, a certified public accountant, was listed as the                   
          corporate officer or legal representative to be "called for                 
          information" in connection with the election.  Ms. Tidwell was              
          the accountant for the Dugans and NTI during the relevant                   
          periods, but she was not an officer of NTI, nor had she been                




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