-53-
1981 are 1981 income to petitioners but reduce the amount of
SSI's undistributed taxable income for SSI's fiscal 1982.
We have found that, during 1981, Maximum Management wrote a
$300 check to Monica, and wrote $5,225.92 in checks to Watkins to
pay for Watkins' services in taking care of petitioners'
children. We have found that Maximum Management was Monica's
sole proprietorship. Supra L. Maximum Management. The notices
of deficiency refer to Maximum Management as one of "several
business accounts, over which you exercised control."
Petitioners' 1981 tax return, on which petitioners characterized
Maximum Management as Monica's sole proprietorship, was filed
more than 6 months after the notice of deficiency was sent to
Monica. Ordinarily, a personal diversion of funds from a sole
proprietorship is not directly an income item to the proprietor--
however, such a diversion of funds may not be treated as an
allowable deduction in calculating the sole proprietorship's net
income or loss. The net income or loss is then taken into
account in determining the sole proprietor's adjusted gross
income. In the instant case, neither side attempted to
reconstruct Maximum Management's income and deductions. However,
Monica testified that, the way Maximum Management was intended to
operate, it "should have zero at the end". Under the
circumstances of the instant case, we treat the $300 check to
Monica and the $5,225.92 in checks to Watkins as leading to a
Page: Previous 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 NextLast modified: May 25, 2011