- 9 -
Subsequently, respondent reduced the disallowed amount to $178,694
to reflect an additional allowance of $2,443 for water and
electricity costs.5
On its 1993 Form 1120, U.S. Corporation Income Tax Return,
petitioner claimed a $397,519 deduction for amounts it paid to
Union Mexico. Respondent again disallowed that portion (totaling
$357,024) that related to payment for inspection and bathing costs.
Respondent disallowed the payment for inspection and bathing
costs on the basis that the costs for these expenses were not
properly allocable to petitioner, but rather were those of Union
Mexico. As a consequence of this determination, respondent
characterized petitioner’s payments to Union Mexico as constructive
dividends (representing a distribution of petitioner’s earnings and
profits to its foreign parent company).
Respondent further determined that petitioner should have
withheld income tax at the source, pursuant to section 1442, with
respect to purported dividends ($178,694 for 1992 and $357,024 for
5 The following summarizes the processing fees adjustment
for 1992:
Total processing fees claimed:
Inspection, bathing,
water, and electricity $204,288
Processing fees allowed:
Water 10,214
Electric 12,937
Processing fees disallowed:
Inspection, bathing 181,137
Additional allowance:
Water and electric 2,443
Disallowance 178,694
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011