Clark D. and Janis L. Pulliam - Page 14

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               Homes and Chapel were engaged immediately after the                    
          distribution in the active conduct of the funeral business.                 
               The funeral business was actively conducted by Homes                   
          throughout the 5-year period ending on the date of the                      
          distribution.                                                               
               In 1993 Mr. Deckard paid his first annual installment of               
          $45,570.13 to Mr. Pulliam under the Agreement.  Petitioners                 
          timely paid taxes on that installment payment.                              
               Mr. Deckard defaulted in 1994 on the installment sale.  His            
          employment by Chapel then ended.  He demanded that Mr. Pulliam              
          return the payments he had made, but later settled for $5,000.              
          After defaulting, Mr. Deckard abided by his covenant not to                 
          compete with Chapel, which prevented him from working as a                  
          funeral director in Oblong.  Mr. Pulliam reacquired almost all of           
          Chapel's common stock as the result of Mr. Deckard's default                
          under the terms of paragraphs 1 D and E of their Agreement.                 
               At all times after Chapel was created as a professional                
          corporation, Mr. Pulliam was president and majority owner of                
          Chapel's stock, and was in ultimate control of its operations.              
               In the notice of deficiency respondent determined that Mr.             
          Pulliam received dividends of $789,500 from Homes, which were not           
          reported on petitioners' Federal income tax return for 1992.                
          Therefore, their taxable income was increased $789,500.                     
                                       OPINION                                        






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