Compact Equipment Company - Page 11

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               The Atkinsons’ individual tax return for the 1985 calendar             
          year includes two Forms W-2 for Atkinson.  The Forms W-2 reflect            
          $559,441 in compensation earned from petitioner.  For the 1986              
          calendar year, the Atkinsons’ individual tax return contains one            
          Form W-2 for Atkinson from petitioner in the amount of                      
          $561,506.38.  The Forms W-2 from petitioner do not reflect as               
          compensation any of the construction expenses.                              
          Petitioner’s $69,000 Payment for Lumber                                     
               In early 1986, during the preparation of petitioner’s                  
          corporate tax return for the taxable year ending March 31, 1986,            
          Dunkin’s staff questioned the propriety of deducting a $69,000              
          payment to the Tahoe Lumber Co. for lumber.6  During a subsequent           
          meeting with Atkinson, Dunkin discussed the $69,000 payment with            
          Atkinson.  Atkinson dismissed Dunkin’s concerns and instructed              
          Dunkin to treat the $69,000 payment as a deduction on                       
          petitioner’s corporate tax return.                                          
               Around the time that Dunkin questioned the $69,000                     
          deduction, Atkinson began negotiating with Victor Ameye, the                
          chief executive officer of Neoax Corp., for the sale of                     
          Atkinson’s 100-percent interest in petitioner to Neoax Corp.                
          During the negotiations, Ameye addressed the $69,000 payment.               
          Ameye expressed concern about the use of corporate funds for the            

               6  The parties stipulate that the payment for the lumber               
          amounted to “approximately $70,000".  The record indicates that             
          the payment was closer to $69,000.                                          

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