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October 7, 1996, termination of petitioner’s subchapter S
status.4
On or about June 30, 1997, there was filed on behalf of
petitioner a subchapter C Federal corporate income tax return for
petitioner’s 1996 short taxable year beginning October 8, 1996,
and ending December 31, 1996. On this subchapter C corporate tax
return, petitioner reported the approximate $1.9 million in
current year retained earnings, and petitioner reflected the
approximate $9.7 million in retained earnings accumulated in
prior years, essentially all of which earnings were merely
allocated to petitioner from and through ADCS-Limited, Holdings
LLC, and Operating LLC (because ADCS-Limited, Holdings LLC, and
Operating LLC were treated as nontaxable partnerships).
Essentially all the funds reported as retained earnings by
petitioner actually were held and retained by ADCS-Limited, and
were never actually distributed to petitioner.
On or about June 15, 1998, there was filed on behalf of
petitioner a subchapter C, Federal corporate income tax return
for petitioner’s 1997 short taxable year beginning January 1,
1997, and ending October 10, 1997. On this subchapter C
4 Even though petitioner was not incorporated until
June 13, 1996, petitioner’s original and amended subchapter S
corporate Federal income tax returns for its first short taxable
period apparently were filed for the short taxable period
beginning as of Apr. 1, 1996.
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