Char-Lil Corporation - Page 39

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                  ESTATE IS TO BE TREATED AS ADJUSTED INCOME FROM                     
                  RENTS, AS PER CODE SEC. 543(A)(2) AND (B)(3).                       
                  """SEE ATTACHED"""                                                  
                  CHAR-LIL CORPORATION'S ADJUSTED INCOME FROM                         
                  RENTS, AS DEFINED MEETS THE 50% TEST AND THE 10%                    
                  TEST TO BE EXCLUDABLE FROM PERSONAL HOLDING                         
                  COMPANY INCOME, AS PER CODE SECS. 541-547.                          
                  IT IS OUR CONCLUSION THAT CHAR-LIL CORPORATION                      
                  IS NOT SUBJECT TO PERSONAL HOLDING COMPANY TAX                      
                  BECAUSE IT DOES NOT MEET THE 60% TEST ON PERSONAL                   
                  HOLDING COMPANY INCOME!                                             
                  """SEE ATTACHED"""                                                  

                  In the case of petitioner's returns for 1989 through                
             1993, petitioner argues that there was adequate disclosure               
             because the personal holding company tax issue is apparent               
             from the face of each return.  In support of that argument,              
             petitioner points to the testimony of respondent's revenue               
             agent, who stated that he identified the issue based upon a              
             review of petitioner's 1993 return.  The agent's testimony               
             on cross-examination on this point is as follows:                        

                       Q  Mr. Neubauer, you testified that, at the                    
                  time you began the audit, you identified the                        
                  personal holding company issue as a subject of                      
                  your audit.  Is that correct?                                       
                       A  Potentially, the personal holding company                   
                  tax could apply.                                                    
                       Q  What--on what basis did you make that                       
                  identification of that audit issue?                                 
                       A  Just the--just with the comparison of the                   
                  interest income versus the rents.                                   




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Last modified: May 25, 2011