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to its assets reported on line 6 and its liabilities reported on
line 18. On its 1993 Schedule M-1, Reconciliation of Income
(Loss) per Books With Income (Loss) per Return, AJCS reported a
loss of $37,706, which represents the combined income for AJCS
and the four affiliates.
Respondent determined that $2,261,555 of the $2,808,034
deducted on AJCS’s 1993 tax return was expended for completing
the contracts that had been transferred to the four affiliate
corporations.
Workmen’s Compensation Expenses
In 1993, AJCS had transferred its contracts to the four
affiliates and, as a result, had no employees performing concrete
forming work. AJCS, however, deducted $135,194 as insurance on
line 19 of its 1993 return. AJCS accrued $269,815 as a workmen’s
compensation insurance liability on its 1993 return. In
computing its 1993 taxable income, AJCS reversed the workmen’s
compensation accrual.
AJCS made payments of approximately $275,000 to various
insurance companies. West and Georgia for their years ended
September 30, 1993 and 1994, and Central for its years ended June
30, 1993 and 1994, did not claim a workmen’s compensation or
insurance expense on line 26 of the corporate Federal tax
returns. West reported a relatively large amount of cost of
goods sold, but no breakdown was provided to reflect whether
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Last modified: May 25, 2011