Richard C. and Hattie M. Martin - Page 9




                                        - 9 -                                         

          Hattie, claimed Schedule C losses of $540,567, $173,480, and                
          $248,653 for 1992, 1993, and 1994, respectively; and William and            
          his wife, Sylvia, claimed Schedule C losses of $195,541, $66,991,           
          and $90,170 for 1992, 1993, and 1994, respectively.                         
               Cola, Inc. filed corporate income tax returns (Forms 1120) for         
          1992, 1993, and 1994, reporting no taxable income or expenses               
          (other than a franchise tax fee paid to the State of California).           
               Respondent disallowed the Schedule C losses petitioners                
          claimed on their respective returns on the grounds: (1) The losses          
          belonged to Cola, Inc., and not petitioners as individuals; and (2)         
          petitioners failed to demonstrate that the losses were actually             
          incurred.                                                                   
                                       OPINION                                        
          Issue 1.  Characterization of Cola, Inc.                                    
               The fundamental issue involved is whether Cola, Inc.                   
          constituted a separate corporate taxable entity during 1992, 1993,          
          and 1994.  Respondent contends that it did, and accordingly, Cola,          
          Inc.'s losses were improperly deducted on petitioners' individual           
          returns.  On the other hand, petitioners maintain that shortly              
          after Cola, Inc.'s formation, Richard learned that Raul would be            
          unable to contribute capital to the corporation as anticipated and          
          consequently, Richard was forced to abandon the business' corporate         
          form and operated it as a sole proprietorship.                              







Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  Next

Last modified: May 25, 2011