23
Use of the corporate form to limit the personal liability of
a taxpayer has long been recognized as a valid business purpose
for incorporating. Davis v. Commissioner, 64 T.C. 1034, 1044
(1975) (citing Siegel v. Commissioner, 45 T.C. 566 (1966));
S. Dredging Corp. v. Commissioner, 54 T.C. 705 (1970); Doe v.
Commissioner, T.C. Memo. 1993-543, affd. in part and revd. in
part on other grounds 116 F.3d 1489 (10th Cir. 1997); Aagaard v.
Commissioner, T.C. Memo. 1985-194, affd. sub nom. Gran v.
Commissioner, 664 F.2d 199 (8th Cir. 1981).
We find Mr. Grigoraci’s reasons for forming Grigoraci S
Corporation believable and logical. The formation of the
corporation to limit his personal liability is a valid business
purpose. Accordingly, the Grigoracis satisfy the first prong of
the test of Moline Props., Inc. v. Commissioner, supra, and we
shall recognize the existence of the corporation for Federal tax
purposes.
Respondent has advanced no other argument to support the
determination that the Grigoracis owe self-employment tax on the
$32,000 of income. Accordingly, we hold that the Grigoracis do
not owe self-employment tax on the $32,000 of income that
respondent determined was personal service income and not wages.
Moreover, we determine that the Grigoracis properly reported this
income as wages from Grigoraci S Corporation.
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