Custom Chrome, Inc. and Subsidiaries - Page 13

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               On July 22, 1993, a secondary public offering was held with            
          stock in petitioner selling for $17.50 per share.  Through this             
          secondary offering, JC Investors sold off all of its stock in               
          petitioner.                                                                 
               During the years in issue, petitioner operated as an accrual           
          basis taxpayer with a tax year ending January 31.                           

          Tax Returns and Audit                                                       
               On its corporate Federal income tax returns for each of its            
          taxable years 1990 through 1993, petitioner claimed a current               
          business expense deduction to amortize a ratable portion of the             
          $5 million paid to Cruze in 1990 under the 3-year covenant not to           
          compete, as follows:                                                        

                    Tax Year Ending          Amortization Claimed                     
                    Jan. 31, 1990            $  694,444                               
                    Jan. 31, 1991                 1,666,667                           
                    Jan. 31, 1992                 1,666,666                           
                    Jan. 31, 1993                972,223                              
                                   Total     $5,000,000                               

               On its 1990 corporate Federal income tax return, petitioner            
          claimed an ordinary business expense deduction for the total                
          $1.25 million paid to Panzica, Battistella, and Navarra under the           
          bonus and noncompetition agreements.                                        
               On its 1992 corporate Federal income tax return, petitioner            
          claimed a current business deduction of $1,342,347 for financing            
          charges allegedly incurred in connection with the LBO.                      





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