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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