Alan G. Bone and Kathleen A. Bone - Page 8




                                        - 8 -                                         
          workmen’s compensation or insurance expense had been claimed                
          within cost of goods sold.                                                  
               East was the only affiliate that was shown to have deducted            
          an insurance expense for workmen’s compensation.  East’s short              
          year return for the period ended March 31, 1993, reflects a                 
          $5,332 deduction on line 26 for “W/C insurance”, and East’s                 
          Schedule M-1 reflects a “W/C accrual” of $83,536.  No workmen’s             
          compensation insurance deduction is listed on East’s March 31,              
          1994, return.                                                               
                                      OPINION                                         
               Petitioners were the shareholders of AJCS, an S corporation.           
          Accordingly, any adjustment to AJCS flows through to petitioners.           
          Respondent determined that several adjustments were necessary to            
          items reported on AJCS’s 1993 return, resulting in flowthrough              
          adjustments and income tax deficiencies for petitioners’ 1993               
          taxable year.                                                               
          I.  AJCS’s Expenditures in Connection With the Contracts                    
          Transferred to the Affiliates                                               
               The first issue for our consideration is whether AJCS’s                
          expenditure of $2,261,555 is deductible as AJCS’s ordinary and              
          necessary business expenses or whether those expense obligations            
          pertained to the four affiliates.8                                          

               8 With respect to the $2,261,555 adjustment, respondent has            
          abandoned his alternative argument under which allocations of the           
          $2,261,555 in expenses would have been made to the four                     
                                                             (continued...)           





Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  Next

Last modified: May 25, 2011