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During the years at issue, DPP received no capital
contributions from any partner, held no formal partnership
meetings at which minutes were maintained, and had no employees.
DPP’s stated address was identical to that of DPC.
Beginning in 1990, DPP received from FIL payments equaling
15 percent of the net price of FIL’s exported products, less the
sums described above as remitted to DPC in 1990 and 1991. The
payments were made by wire transfer from FIL into bank accounts
maintained by DPP in the United States and England. DPP did not,
however, enter any written contracts or agreements with FIL
regarding these amounts and performed no services for FIL.
DPP was included as an affiliated entity for purposes of the
combined financial statements prepared for “Deitsch Plastic
Company, Inc. and Affiliates”. The payments received from FIL
were reported in the financial statements as “Consulting Income”.
An accompanying note for years 1991 through 1993 explained: “All
consulting income was earned from Flocktex Industries Limited,
Inc.” A similar note with respect to 1994 read: “All consulting
income was from Flocktex.”
DPP filed a Form 1065, U.S. Partnership Return of Income,
for each of the taxable years in contention. Thereon, DPP listed
its principal business activity as “consulting” and its principal
product or service as “plastics”. DPP’s reported gross receipts
consisted solely of the payments from FIL. The spaces for type
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