- 5 -
B. Flow of the Funds Paid By the Five Through IRA and
Its Subsidiaries to Kanter, Ballard, and Lisle .. 166
1. Overview ................... 166
2. Payments from IRA, KWJ Corp., and KWJ Co.
Partnership ................. 166
a. 1982: IRA Payments to Ballard and Lisle . 166
b. Consulting Fees Paid to Ballard's and
Lisle's Children ............ 167
c. KWJ Partnership 1989 Payments to Lisle
and Ballard ............... 168
3. Disposition of Funds out of Carlco, TMT, and
BWK to Kanter ................ 169
a. Creation of Carlco, TMT, and BWK, Inc. . 169
b. Control and Management of Carlco, TMT,
and BWK, Inc. .............. 171
c. Ballard: Disposition of Funds out of
TMT .................. 173
d. Lisle: Disposition of Funds out of
Carlco ................. 178
e. Kanter: Disposition of Funds out of BWK,
Inc. .................. 180
4. Loans .................... 181
a. IRA Loans to Kanter ........... 181
b. Loans to Ballard, Lisle, Their Family
Members and Trusts ........... 181
5. Writeoff of Loans and Losses ......... 185
C. Payments to Holding Co. and Its Subsidiaries ... 211
D. Distributions to Kanter .............. 212
E. Examination of Petitioners' Returns ........ 215
OPINION ........................... 226
I. Position of the Parties ................ 227
II. Omitted Income ..................... 229
A. The Transactions ................. 230
1. The Hyatt Payments .............. 230
2. The Frey Arrangement ............. 238
3. The Schaffel Arrangement ........... 240
4. The Schnitzer Arrangement .......... 243
5. The Eulich/Essex Arrangement ......... 249
6. Conclusion .................. 255
B. Overview of the Law ................ 256
1. Sham Corporations .............. 258
2. Assignment of Income ............. 271
3. Section 482 ................. 277
4. Conclusion .................. 279
III. Fraud Additions to Tax and Penalties .......... 286
A. Positions of the Parties ............. 286
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Last modified: May 25, 2011