Joseph M. Grey Public Accountant, P.C. - Page 6




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          respectively.  In calculating those amounts of ordinary income,             
          petitioner claimed no deductions for either compensation of                 
          officers or salaries and wages.  Petitioner did claim deductions            
          for independent contractor fees in the amounts of $6,000 and                
          $7,200 for 1995 and 1996, respectively, and deductions for rent             
          in the amounts of $193 and $7,040, respectively, for those years.           
          Both the 1995 and the 1996 Form 1120S are signed by Mr. Grey, as            
          president of petitioner, and are dated January 18, 1996, and                
          December 26, 1997, respectively.                                            
               For both 1995 and 1996, petitioner issued Mr. Grey a                   
          Form 1099-MISC (the Forms 1099-MISC), reporting nonemployee                 
          compensation of $6,000 and $7,200, respectively.  For both years,           
          petitioner transmitted copies of such forms to the Internal                 
          Revenue Service by filing a Form 1096, Annual Summary and                   
          Transmittal of U.S. Information Returns (the Forms 1096).  Both             
          the 1995 and the 1996 Form 1096 are signed by Mr. Grey, as                  
          president of petitioner, and are dated January 12, 1996, and                
          March 18, 1997, respectively.  Petitioner also issued Mr. Grey              
          Schedules K-1, Shareholder’s Share of Income, Credits,                      
          Deductions, Etc. (the Schedules K-1), showing that, for 1995 and            
          1996, his share of petitioner’s ordinary income from business was           
          $33,196 and $24,990, respectively.                                          










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