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and FUTA tax liabilities on payments made by petitioner for Mr.
Henderson’s personal expenses in the amount of $86,766 and
$143,148 for 1995 and 1996, respectively. The record is silent
as to why the amounts in the notice of determination are $10,000
and $73 less than the amounts of Mr. Henderson’s personal
expenses paid by petitioner for 1995 and 1996, respectively.
These differences appear from time to time, but we shall decide
the case based on respondent’s notice of determination.
On Forms 1120S, U.S. Income Tax Return for an S Corporation,
petitioner reported ordinary income from its trade or business
for 1995 and 1996 of $217,985 and $380,559, respectively.
Petitioner reported these amounts of ordinary income as Mr.
Henderson’s share of ordinary income from trade or business
activities on Schedules K-1 (Schedules K-1), Shareholder’s Share
of Income, Credits, Deductions, etc., filed with each Form 1120S
for 1995 and 1996.
Mr. Henderson and his wife timely filed Forms 1040, U.S.
Individual Income Tax Return, for 1995 and 1996. They reported
the $217,985 and $380,559 of ordinary income from the Schedules
K-1 on their returns for 1995 and 1996, respectively.
On or about December 3, 1992, Mr. Henderson filed a petition
with the United States Bankruptcy Court, Eastern District of
North Carolina (Bankruptcy Court), seeking relief from personal
indebtedness under Chapter 7 of the Bankruptcy Code. On or about
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