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BAC’s S Election
Mr. Portman recommended that BAC be owned by Mrs. Baldwin in
order to protect petitioner’s trading business from liability in
the event of an accident and informed petitioner’s accountant
that Mrs. Baldwin would own BAC. Mr. Portman prepared BAC’s Form
2553, Election by a Small Business Corporation (Under section
1362 of the Internal Revenue Code), and sent the Form 2553 to
petitioner with instructions for Mrs. Baldwin to sign as sole
shareholder. However, Mrs. Baldwin did not sign the form and did
not consent to BAC’s election to be treated as an S corporation.
Instead, Liz Matre signed Mrs. Baldwin’s name (as consenting
shareholder and as president of BAC) on the form. Respondent
accepted the facially complete Form 2553 on May 31, 1988.
BAC’s 1988 and 1989 Forms 1120S, U.S. Income Tax Return for
an S Corporation, list Mrs. Baldwin as BAC’s sole shareholder.
BAC’s 1990, 1991, and 1992 Forms 1120S, which were filed after
petitioners’ divorce proceeding had commenced, list petitioner as
BAC’s sole shareholder.
BAC’s Transportation Activity
During the years at issue, petitioner regularly used the
Sabre to transport himself and his family, friends, and other
invited guests to Granot Loma. In an effort to structure the
operation of BAC as a business, petitioner, beginning in
approximately May 1989, arranged for BAC to invoice one of his
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