-17-
form should be respected.
In support of the argument that the corporate form should be
disregarded, respondent points out that petitioners did not open a
separate checking account for the corporation, used stationery that
did not have the corporate name, and filed a Schedule C with their
1988 tax return reporting MPM income as income from a sole
proprietorship. Petitioners claim that a Schedule C was used in
1988 because they did not have the correct forms. Respondent cites
Noonan v. Commissioner, 52 T.C. 907 (1969), affd. 451 F.2d 992 (9th
Cir. 1971), for the proposition that "if a corporation is simply a
shell and cannot establish that it was formed for any significant
nontax business purpose, its existence will be disregarded for tax
purposes even though it may be validly incorporated under state
law". Respondent cites other cases involving sham transactions.
Petitioners incorporated MPM on the advice of counsel in order
to limit their personal liability, a significant business purpose.
MPM was a small, newly formed business operated from petitioners'
residence. Although petitioners might not have followed every
corporate formality, and despite petitioners' use of Schedule C to
report MPM's income, we conclude that MPM was incorporated for a
proper purpose and operated as an entity which should be respected
for tax purposes. See Moline Properties, Inc. v. Commissioner, 319
U.S. 436, 438-439 (1943). Accordingly, we hold that Mrs. Marzullo
is not liable for self-employment tax on the income of MPM after
August 31, 1987.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011