- 3 -
5/31/88 $89,534 $6,570 1 - $32,850 -
5/31/89 311,413 - - $17,869 89,345-
5/31/90 514,390 - - - - $102,878
150 percent of the interest due on $148,814.
Respondent determined deficiencies in, additions to tax, and
penalties in, Powertex, Inc.'s withholding tax as follows:
Powertex, Inc., docket Nos. 20229-93, 6209-94:
Tax
Year Additions to Tax Under Section Penalties
Ended Deficiency6651 6653(a) 6653(a)(1)(A) 6653(a)(1)(B) 6656 6661 Sec. 6662(a)
5/31/85 - - - - - 167 - -
5/31/86 $412,425 $103,776.50 - $20,621.25 1 41,510.60 $103,106.25 -
5/31/87 - - - - - 136 - -
5/31/88 48,206 12,454$2,410.30 - - 4,981.60 12,051.50 -
5/31/89 487,975- - - - 50,106.90 - $100,213.80
- - -
5/31/90 245,882- - 24,588 - 49,176
150 percent of the interest due on the deficiency.
Pursuant to amended answers, respondent asserts increased
deficiencies, additions to tax, and penalties in petitioners'
Federal income taxes.2
2 The increased deficiencies result from respondent's
assertion of additional constructive dividends to the individual
petitioners which, correspondingly, results in increased
additions to tax and penalties. Specifically, respondent amended
his answers to assert that certain payments deducted as
management fees paid by Powertex, Inc. to Powertex Plus
International, Inc. resulted in constructive dividends. The
amendments to answer assert such constructive dividends against
several of the individual petitioners in addition to those
against whom constructive dividends were determined in the
notices of deficiency. The amendments to answer also raise an
alternative argument that if these payments are not constructive
dividends, they should be characterized as compensation income to
the individual petitioners.
Respondent also amended his answers with respect to certain
royalty payments that respondent determined were not ordinary and
necessary business expenses pursuant to sec. 162. In the notices
of deficiency, respondent's alternative position was that the
royalty rate should be adjusted, pursuant to sec. 482, to 5
percent. By way of amended answers, respondent asserts that the
(continued...)
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