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Street, Dickinson, North Dakota. The corporation's taxable year
was a fiscal year ending June 30 for taxable years ending June
30, 1986 and 1987. During 1987, however, the corporation changed
its taxable year to a calendar year.
During the relevant taxable years, petitioner was an
orthodontist who maintained, through the corporation, an
orthodontic practice with locations in Dickinson, North Dakota;
Williston, North Dakota; Sidney, Montana; Glendive, Montana; and
Miles City, Montana. Petitioner was the only orthodontist in the
corporation's orthodontic practice, for which he was paid a
salary by the corporation.
In its books and records, the corporation maintained a "Loan
and Exchange" account receivable from petitioner (the loan and
exchange account). The corporation made payments to and for the
benefit of petitioner for both corporate and personal expenses
and increased the amount in the loan and exchange account to
reflect the amounts of such payments. Additionally, the
corporation made certain payments to and for the benefit of
petitioner that were not from the loan and exchange account. At
the end of the corporation's taxable year, the corporation's
accountant classified payments from the loan and exchange account
as either corporate expenses or personal expenses. Generally,
amounts that were classified as personal expenses were treated as
compensation to petitioner and were reported on petitioner's Form
W-2.
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