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FINDINGS OF FACT
The parties’ stipulation of facts and the exhibits are
incorporated herein by this reference.
Petitioners J. Michael and Marita Shedd (the Shedds) are
husband and wife and resided in Livonia, Michigan, at the time
their petition was filed. The Shedds each owned 50 percent of
J&J, whose principal place of business was Romulus, Michigan, at
the time its petition was filed. J&J was engaged in the freight
forwarding business in the Detroit, Michigan, metropolitan area.
Mr. Shedd owned 100 percent of TLC, which was engaged in a
freight forwarding business in Cleveland, Ohio. J&J and TLC are
related due to Mr. Shedd’s stock ownership. J&J began operating
in June 1988, and Mrs. Shedd maintained its books without
receiving compensation. Mr. Shedd was president of J&J. J&J did
not declare or pay any dividends.
J&J was the first of the Shedds’ companies to become
involved in a network of independent freight forwarding
contractors named SEKO. Payments were made by freight customers
to SEKO, which retained 40 percent of adjusted revenues and
remitted the balance to the contractors. SEKO also retained the
right to apply customer receipts to outstanding indebtedness and
was entitled to maintain contractor security deposits. Under its
agreement with SEKO, J&J’s shareholders were required to
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