Char-Lil Corporation - Page 14

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             consistently retain real estate agents to assist in the                  
             sale of its properties.                                                  
                  Mr. McKelvey also told respondent's agent during the                
             audit that most of the persons who had purchased any of                  
             petitioner's properties had previously been tenants and he               
             knew them to be good payors so that it required very little              
             effort to collect payments from them after the purchase.                 
             Furthermore, Mr. McKelvey told the agent that petitioner's               
             operating expenses related to the rental properties.                     
                  In the subject notice of deficiency, respondent                     
             determined that during each of the years in issue,                       
             petitioner was a personal holding company, as defined by                 
             section 542.  The notice of deficiency states as follows:                

                  Since over 50 [sic] percent of your adjusted                        
                  ordinary gross income reported for the taxable                      
                  years 1989, 1990, 1991, 1992, 1993, and 1994                        
                  was from dividends, rents and interest, you                         
                  qualified as a personal holding company as                          
                  defined by Section 542 of the Internal Revenue                      
                  Code.  Therefore, you were subject to the                           
                  personal holding company tax imposed by Section                     
                  541 of the Code.                                                    

                  Respondent also disallowed a portion of the deductions              
             claimed by petitioner for the years 1992 and 1993 on the                 
             ground that the total deductions claimed for each of those               
             taxable years exceeded the income from petitioner's passive              

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Last modified: May 25, 2011