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in 1992. A total of $40,000 representing these additional
amounts was deducted by the corporation as consulting fees on its
1992 Federal income tax return. Mr. Norwalk reported this
additional amount as ordinary income on his 1992 Federal income
tax return. Mr. DeMarta did not report any of this additional
amount on his Federal income tax return.
On January 3, 1992, as reflected in the corporation's
minutes, the board of directors (Messrs. DeMarta and Norwalk)
authorized the distribution of the corporation's assets and
liabilities to the shareholders. These corporate minutes
provided the following reason for this distribution:
Due to lack of profitability, it was decided to
stop practice as Certified Public Accountants within
the structure of DeMarta & Norwalk. It was further
decided to distribute all available assets and
liabilities to the shareholders. Each shareholder
would then be able to pursue a professional practice on
their own or as partners with other CPA(s).
On July 1, 1992, following the distribution of the
corporation's assets, Messrs. DeMarta and Norwalk became partners
of the accounting firm Ireland, San Filippo (the partnership),
and transferred assets, distributed to them by the corporation,
to the partnership. The partnership did not use the
corporation's name. The tangible assets distributed to the
shareholders included all the corporation's furniture and
equipment, which the corporation reported on its 1992 Federal
income tax return at a value of $59,455. These assets were
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