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at a monthly rental of $500. During 1995 and 1996, Mr. Grey
performed the following services for petitioner:
1. Solicited business on behalf of petitioner;
2. Ordered petitioner’s supplies;
3. Entered into verbal and/or written agreements on
behalf of petitioner;
4. Oversaw the finances of petitioner;
5. Collected monies owed petitioner;
6. Managed petitioner;
7. Purchased petitioner’s supplies;
8. Obtained clients for petitioner;
9. Maintained customer satisfaction;
10. Performed all bookkeeping services for petitioner;
11. Performed all accounting, bookkeeping, and tax
preparation services for petitioner on behalf of
petitioner’s clients.
During 1995 and 1996, all receivables collected by
petitioner were deposited into its checking account. Mr. Grey
was the only person with signature authority over that account.
During 1995 and 1996, petitioner did not make regular
payments at fixed times to Mr. Grey for his services. Rather,
Mr. Grey would take money from petitioner’s account to pay for
his needs as they arose.
Petitioner did not distribute any dividend to any
shareholder during 1995 or 1996, and petitioner did not classify
any payment made to Mr. Grey as a dividend in 1995 or 1996.
Petitioner’s Returns
For each of 1995 and 1996, petitioner made its return
of income on a Form 1120S, U.S. Income Tax Return for an
S Corporation (the Forms 1120S). Petitioner reported ordinary
income from business of $33,196 and $24,990 for 1995 and 1996,
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Last modified: May 25, 2011