Addison Distribution, Inc. - Page 2

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                  9817-96            12/31/92      233,413         46,683                                
                                     12/31/93     111,093          22,219                                
                  All section references are to the Internal Revenue Code in                             
            effect for the years in issue, and all Rule references are to the                            
            Tax Court Rules of Practice and Procedure.                                                   
                  After concessions,1 the issues for decision are (1) whether                            
            respondent determined that the method of accounting used by                                  
            Addison Engineering, Inc. (AEI), did not clearly reflect income,                             
            and (2) whether AEI must change from the cash method to the                                  
            accrual method of accounting for its tax years ending on October                             
            31, 1992 and 1993.2                                                                          
                                          FINDINGS OF FACT                                               
                  Some of the facts have been stipulated and are so found.                               
            The stipulations of facts, the stipulation of settled issues, and                            
            the attached exhibits are incorporated herein by this reference.                             
            At the time petitioners filed their petitions, AEI and Addison                               
            Distribution, Inc. (Distribution), each had their principal                                  
            places of business in San Jose, California, and Win H. Emert (Mr.                            
            Emert) resided in San Carlos, California.                                                    

                  1  Respondent concedes that petitioners are not liable for                             
            the accuracy-related penalties.                                                              
                  2  The parties filed a stipulation of settled issues which                             
            resolved all other issues.  Our decision regarding these issues                              
            affects the flowthrough tax consequences to petitioner Win H.                                
            Emert, AEI's sole shareholder.                                                               

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