Van Roekel Farms, Inc. - Page 4




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          responsible for allocating its contributions among the                      
          participants’ accounts in proportion to their compensation.5                
               For years ending July 31, 1994, 1995, and 1996, the plan               
          filed Forms 5500–C/R, Return/Report of Employee Benefit Plan,               
          showing contributions of $2,250, $2,700, and $2,550,                        
          respectively.  Similarly, for each of those years, petitioner               
          deducted $2,250, $2,700, and $2,550, respectively, on Forms 1120,           
          U.S. Corporation Income Tax Return, as payments to the plan on              
          behalf of Mr. Van Roekel.  As shown below, petitioner reported no           
          deduction for salaries, wages, or officers’ compensation but                
          deducted management fees paid to Mr. Van Roekel as an independent           
          contractor:                                                                 
       Pension,             Other                                                     
       Tax year    Compensation of    Salaries and    profit sharing,       deductions1
       ending        officers            wages         etc., plans      (management fees)
       1994            –0–                –0–            $2,250              $15,000  
       1995            –0–                –0–             2,700              218,000  
       1996            –0–                –0–             2,550               15,000  
        1Petitioner claimed miscellaneous expenses as “Other deductions” on line 26 of Form
       1120 and attached a schedule in which it separately stated each expense.       
        2Petitioner included this amount on line 27 of Form 1120 titled “Total deductions”
       and not on line 26.                                                            
               For calendar years 1994, 1995, and 1996, Mr. Van Roekel and            
          his wife, Darlene, filed joint Federal income tax returns.  He              
          worked as petitioner’s farm manager on an independent contractor            
          basis, and, as reflected below, reported the management fees that           


               5The ESOP defined compensation as “compensation paid by the            
          Employer to the Participant during the taxable year ending with             
          or within the Plan Year which is required to be reported as wages           
          on the Participant’s Form W-2”.                                             




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