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Procedure. After concessions, the issue remaining for
determination is whether certain transfers from Adena Fuels, Inc.
(Adena), to Fox Trot Corp. (Fox Trot), increased petitioners’
basis in Fox Trot.
FINDINGS OF FACT
Charles and Jacquelyn Yates (petitioners) resided in
Clearwater, Florida, when they filed their petition.
During 1993 through 1996, Mr. Yates was the sole
shareholder, officer, and director of several mining and mining-
related corporations (mining companies), including Adena, an S
corporation, and Adena Processing Company (Adena Processing),
operating in Eastern Kentucky. Mrs. Yates is not, and has never
been, a shareholder, officer, or director of any of the mining
companies.
From 1993 through 1996, Mr. Yates employed Larry Adams, a
certified public accountant. Mr. Adams kept the books for
petitioners and their companies. Because of Mr. Yates’ frequent
unavailability, Mr. Adams had the authority to sign Adena’s
checks.
From 1993 through 1996, petitioners wrote 409 checks on
Adena’s account, totaling $1,831,156, for various personal
expenses. In addition, at Mr. Yates’ direction, Adena personnel
wrote 113 checks, totaling $2,231,248, to or for petitioners.
These payments were charged to Mr. Yates’ accumulated adjustments
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