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providing management services to the four affiliates, plus a
markup percentage in the 3-percent range.
AJCS was entitled to receive the management fees at the time
the affiliates completed the contracts. All four affiliates used
the completed contract method to report income for Federal tax
purposes. For the affiliates’ tax years ending in 1993, they
reported gross income as follows:
Affiliate TYE Gross Income
West Sept. 30, 1993 $2,394,029
Georgia Sept. 30, 1993 5,962,994
Central June 30, 1993 -0-
East Mar. 31, 1993 76,116
Georgia deducted $490,000 as management fees paid to AJCS on
its September 30, 1993, tax return. Central deducted $724,880 as
management fees paid to AJCS on its June 30, 1994, tax return.
AJCS did not report any management fee income on its 1993 tax
return.
The four affiliates extended loans to AJCS during the 1993
calendar year. As of the end of the 1993 tax year, the
affiliates had outstanding loans to AJCS as follows:
Affiliate Loan Amount
West -0-
Georgia $1,674,722
Central 568,065
East 80,201
AJCS reported taxable income of $117,018, $358,860, and
$309,967 for the 1990, 1991, and 1992 tax years, respectively.
AJCS’s and the four affiliates’ “schedule of contracts” for the
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Last modified: May 25, 2011