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Statement 2 of the 1997 partnership return contained the language
“Activity Disposed of During 1997".
Prior to the organization of FRGC, PCB incurred overhead and
management expenses for services rendered on behalf of FRGC. In
June 1997, FRGC paid $110,000 for overhead expenses and $78,000
for management fees to reimburse PCB.
On its 1998 U.S. Partnership Return of Income, FRGC reported
interest income of $6,921, dividends of $18, and “other
deductions” of $189,447. The claimed deductions consisted of the
following:
Management and supervision $60,000
Marketing expense 33,835
Office and overhead 78,000
Auto expense 868
Office supplies 1,846
Postage and shipping 2,184
Travel 6,972
Accounting fees 1,175
Miscellaneous 382
Meals and entertainment 667
Amortization expense 3,518
Total $189,447
None of the above expenses were incurred after June 30,
1998. FRGC paid $78,000 for overhead expenses incurred from
January to June 1998. FRGC paid $60,000 to FR Management for
January through June 1998 for management fees. Respondent sent
the FPAA to petitioner on March 15, 2001, disallowing FRGC’s
“other deductions” in the amounts of $669,126 and $189,447 for
1997 and 1998, respectively.
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