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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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