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income tax in the amount of $17,223 and an accuracy-related
penalty under section 6662(a) of $3,445 for the 1995 tax year.
The issues for decision are: (1) Whether petitioner is
entitled to deduct on his individual income tax return losses
incurred in the operation of a restaurant or if such losses are
deductible by BERM Hospitality Services, Inc., a corporation in
which petitioner was the sole shareholder; and (2) whether
petitioner is liable for an accuracy-related penalty under
section 6662(a) for the year in issue. Issues relating to
capital losses, self-employment tax, itemized deductions, and
earned income credit are computational and depend upon the
holding in this case.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time of filing the
petition, petitioner resided in Marion, Illinois.
In August 1994, petitioner and Rich Maker (Mr. Maker) formed
BERM Hospitality Services, Inc. (BERM), d.b.a. D.K.’s Steak &
Seafood House, as a corporation under Illinois law. Petitioner
and Mr. Maker were the initial shareholders of BERM, each owning
50 percent of the stock. BERM conducted business operating a
restaurant, a cocktail bar and lounge, and banquet facilities at
the Holiday Inn Motel (Holiday Inn), Mt. Vernon, Illinois,
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