- 8 - The yearend balances in Central’s accumulated adjustments account6 reported on Central’s Federal income tax returns for the years 1991 through 1996 show undistributed earnings as follows: Year Account Balance 1991 $8,378,797 1992 9,893,868 1993 10,693,387 1994 7,333,838 1995 6,449,973 1996 6,592,738 On several occasions, Charles L. Odom, a certified public accountant and Mr. Honbarrier’s tax and financial adviser, recommended that Central make distributions to shareholders if such funds were not needed in Central’s business. In a memorandum to attorney Charles Lynch, dated November 5, 1993, Mr. Odom stated: “Central has $10 million in undistributed S Corp earnings and would like [to] make a significant distribution to shareholders, but needs its capital for expansion and replacement of aging equipment.” Unlike Colonial, Central did not invest in tax-exempt bonds. Central held passive investments in the form of short-term liquid investments, such as certificates of deposit, because it needed cash and cash equivalents to operate its business. As of yearend 1991 through yearend 1996, Central held cash and short-term investments in the following amounts: 6The accumulated adjustments account reflects undistributed earnings of Central on which Central’s shareholders had paid tax. See sec. 1368.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011