Alexander M. Moye and Judy H. Moye - Page 15

                                                                               - 15 -- 15 -                                                                                

                                                                         II.  OPINION                                                                                      
                    A.        Parties' Contentions and Background                                                                                                          
                              Respondent determined and contends that petitioners' police                                                                                  
                    dog training business was incorporated on February 28, 1990, and                                                                                       
                    that petitioners may not deduct its loss on a Schedule C for that                                                                                      
                    year.  The Commissioner's determination is presumed to be                                                                                              
                    correct, and the taxpayer has the burden of proving otherwise.                                                                                         
                    Rule 142(a); Welch v. Helvering, 290 U.S. 111, 114 (1933).                                                                                             
                              Petitioners contend that they may deduct the $159,426 loss                                                                                   
                    from the police dog training business on their individual tax                                                                                          
                    return because they intended it to be a sole proprietorship in                                                                                         
                    1990.  Petitioners contend that we should disregard the                                                                                                
                    incorporation of Rosewood Kennels, Inc., because they did not                                                                                          
                    intend to incorporate it or operate it as a corporation in 1990                                                                                        
                    and did not know until October 1990 that Bischoff had                                                                                                  
                    incorporated it.                                                                                                                                       
                              State law governs whether a corporation is formed and                                                                                        
                    governs the legal relationships that are established when an                                                                                           
                    entity is formed.  Stoody v. Commissioner, 66 T.C. 710, 716                                                                                            
                    (1976); Skarda v. Commissioner, 27 T.C. 137, 144 (1956), affd.                                                                                         
                    250 F.2d 429 (10th Cir. 1957); sec. 301.7701-1(c), Proced. &                                                                                           
                    Admin. Regs.  Federal law governs whether an entity is taxed, or                                                                                       
                    disregarded, as a corporation.  Burk-Waggoner Oil Association v.                                                                                       
                    Hopkins, 269 U.S. 110 (1925); Carver v. United States; 188 Ct.                                                                                         





Page:  Previous  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  Next

Last modified: May 25, 2011