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parties, with accompanying exhibits, are incorporated herein by
this reference. At the time the petition was filed in this case,
petitioners resided in Manitowoc, Wisconsin.
During the years at issue, petitioner Ronald Leschke was the
president and sole owner of R&J, a small trucking company
operating out of Manitowoc, Wisconsin. R&J had in place at all
relevant times an election to be treated under subchapter S of
the Internal Revenue Code, which provides for the passthrough and
taxation to shareholders of corporate income. See sec. 1366.
Three types of deductions claimed by R&J for the years 1993 and
1994, the disallowance of which would lead to a corresponding
increase in petitioners’ taxable income, form the subject of this
litigation.
Gift Certificates
In 1993, R&J paid $7,606.46 to Towsley, Inc., for 36 gift
certificates. Each gift certificate was priced at $210 and
entitled the recipient to select merchandise from a catalog
enclosed with the certificate. Included among the wide variety
of potential choices available through the catalog were
telephones, stereos, cameras, clocks, luggage, and kitchen
appliances.
The gift certificates were given by R&J as promotional items
to 28 corporate customers, with each such customer receiving
either one or two certificates. R&J deducted $7,606 for the gift
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