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amounts on the Recordses’ respective Forms W-2, Wage and Tax
Statement, as wages subject to withholding, and the Recordses
reported these amounts as compensation on their respective
individual income tax returns. The personal use of the Falcon
served to compensate the Recordses for their services as
employees of petitioner and did not constitute constructive
dividends to them. The amounts of compensation paid to the
Recordses during the years in issue, including the value of the
personal use of the Falcon, were reasonable.
On its Federal income tax returns, petitioner deducted the
following amounts with respect to the operation of the Falcon:
TYE Amount
July 31, 1995 $2,126,223.00
July 31, 1996 1,282,081.52
Dec. 31, 1996 530,957.18
Total 3,939,261.70
The amounts deducted by petitioner include the amounts treated as
compensation to the Recordses for the personal use of the Falcon.
Respondent disallowed petitioner’s deductions related to the
Falcon to the extent that the portion of the deduction amounts
attributable to the personal use of the Falcon exceeded the
amounts treated as compensation to the Recordses for such use.3
3Respondent determined the disallowed amount for each year
in issue by multiplying the total amount deducted by the
percentage attributable to personal use and then subtracting the
amounts included on the Recordses’ respective Forms W-2.
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Last modified: May 25, 2011