Martin Ice Cream Company - Page 4

                                                - 4 -                                                   
            uphold the addition to tax for substantial understatement under                             
            section 6661.1                                                                              
                                          FINDINGS OF FACT                                              
                  Some of the facts are stipulated and are so found.  MIC is a                          
            New Jersey corporation whose principal place of business was                                
            Bloomfield, New Jersey, when it filed its petition.                                         
                  MIC was incorporated in 1971 as a wholesale ice cream                                 
            distributor, with Martin Strassberg (Martin) as its sole                                    
            shareholder.  MIC was a C corporation from 1971 through 1986.  On                           
            December 30, 1986, MIC filed with the Internal Revenue Service a                            
            Form 2553, Election by a Small Business Corporation, which took                             
            effect on November 1, 1987.  As a result of the election, the                               
            accounting period of MIC was changed, commencing January 1, 1988,                           
            from an October 31 fiscal year to the calendar year.                                        
                  Soon after World War II, Arnold, Martin’s father, a high                              
            school mathematics teacher, began a part-time business after                                
            school hours, selling ice cream products wholesale to stores in                             
            Newark, New Jersey.  During summer vacations, Arnold expanded his                           
            coverage to small stores and ice cream parlors on the Jersey                                
            Shore.  By 1960, Arnold had incorporated his own company,                                   
            Arnold’s Ice Cream, and was engaging full time in the wholesale                             
            distribution of ice cream.  In the 1960's, Arnold began to                                  


                  1 All section references are to the Internal Revenue Code in                          
            effect for the year in issue, and all Rule references are to the                            
            Tax Court Rules of Practice and Procedure, unless otherwise                                 
            indicated.                                                                                  



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