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incorporated in 1979 and was in the business of hauling sludge
and other waste products from pulp mill plants in the area to
dump sites. During the years in issue, FGI was an S corporation
under section 1366 and filed U.S. Income Tax Returns for an S
Corporation (Forms 1120S).
During the years in issue, Mr. Garrett also owned 100
percent of Timber Transfer, Inc. (TTI), another trucking
operation. TTI was incorporated in 1981. TTI was also an S
corporation under section 1366 and filed Forms 1120S for the
taxable years 1989, 1990, and 1991.
Mr. Garrett ran the day-to-day operations of both FGI and
TTI until he sold both corporations in 1993.
Mr. Garrett also had an ownership interest in Blumenstock
Enterprises, Ltd. (BEL), a mechanical construction company. BEL,
an S corporation under section 1366, filed a Form 1120S for the
taxable year 1991. Attached to this return was a single Schedule
K-1 (Shareholder's Share of Income, Credits, Deductions, etc.),
which showed that 100 percent of the claimed corporate loss in
1991 flowed to Mr. Garrett. There were no other shareholders
listed on BEL's 1991 return, nor were there any other Schedule
K-1's attached.
The following expenditures claimed by FGI, TTI, and BEL were
among corporate expenses considered personal, nondeductible
expenses by respondent during her audit of petitioners' 1989,
1990, and 1991 tax returns:
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