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Respondent issued notices of final S corporation
administrative adjustment (FSAA’s) with respect to Hatchery and
Foods setting forth various adjustments to their corporate income
tax returns for their taxable years ending in 1994, 1995, and
1996. Respondent determined, inter alia, that Hatchery sold its
broiler chickens to Foods at prices below the arm's-length price
mandated by section 482. As a consequence, respondent adjusted
Hatchery's returns by increasing the gross income that Hatchery
earned on its sale of broiler chickens to Foods during the years
in issue and, concomitantly, adjusted Foods’ returns by
increasing Foods' costs of goods sold for the years in issue.
The FSAA issued with respect to Hatchery included as an
attachment an International Examiner's Report that stated that
accuracy-related penalties under section 6662 should be imposed
at the individual shareholder level.
The tax matters persons for Hatchery and Foods, referred to
collectively as petitioners, filed timely petitions for
readjustment contesting the FSAA’s. Paragraphs 6(h) through (m)
of those petitions allege as follows:
Paragraphs 6(h) of both the Hatchery and Foods petitions
allege that the Commissioner erred in failing to determine that
the additional income allocated to Hatchery for each of the years
in issue should be treated as a constructive distribution to
Hatchery's shareholders in amounts proportionate to their
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Last modified: May 25, 2011