John Bowden, Inc. - Page 5

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          in cash and the $220,468 note payable assumed by the corporation            
          for Mr. Bowden's liability to his ex-wife.                                  
               Respondent's notice of deficiency to the corporation for FYE           
          June 30, 1992 and 1993, determined that expenses shown as                   
          management fees should be reclassified as officers' compensation.           
          Respondent reduced the corporation's deductions for rent,                   
          depreciation, meals and entertaining, insurance, business                   
          promotions, and travel expenses on the basis that they were not             
          ordinary and necessary business expenses.  Respondent also made             
          corresponding increases in the allowable deductions for salaries            
          and auto expenses.                                                          
               The corporation filed a petition with the Court, alleging              
          error in each of the determinations contained in the notice of              
          deficiency.  Respondent filed an answer denying each allegation             
          contained in the petition.                                                  
               In response to a motion, the Court granted the corporation             
          leave to amend its petition.  In the amendment, the corporation             
          alleged that respondent failed to make the required section                 
          362(a) adjustment, which would increase the basis of assets held            
          by the corporation by the amount of gain recognized by the                  
          Bowdens upon transfer of their assets to the corporation.  The              
          corporation further alleged that it was entitled to a refund.  In           
          his answer to the amendment, respondent admitted that if the                
          Bowdens were to recognize a net capital gain by virtue of the               

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Last modified: May 25, 2011