- 4 - Mr. Lechner filed an individual income tax return for 1993, and Stainless filed a corporation income tax return for the fiscal year ended September 30, 1993. Attached to each of those returns was a statement regarding the organization of Stainless in a section 351 exchange. This statement recited that all assets of the sole proprietorship, including “cash accounts and other receivables”, were transferred to Stainless in exchange for its common stock, but that the “only liability assumed was withheld payroll taxes”. The sole proprietorship and Stainless during the taxable years in issue used the cash method of accounting for income tax purposes without objection from respondent. Mr. Lechner incurred $239,594.68 of debt to Stainless by depositing in his personal bank account gross receipts of Stainless attributable to payments, after May 31, 1993, for jobs in progress of the sole proprietorship. On June 30, 1993, Stainless accounted for the deposit by making a journal entry (designated “Receivable from Officer”) in its accounting records showing that Mr. Lechner owed Stainless the amount deposited in his personal account. No promissory notes were ever made representing this debt, and no interest was charged on this debt. After June 1, 1993, Mr. Lechner also made payments with funds from his personal bank account of expenses related to the jobs in progress, and those payments reduced his outstanding debt toPage: 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