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status as of January 1, 1989, and remained in that status through
1993. Petitioner was a C corporation for 1994 through 1996.
Petitioner reported gross sales, total income, and taxable
income for 1986 through 1996 as shown in table 1.
Table 1
Year Gross Sales Total Income1 Taxable Income(Loss)
1986 $2,528,724 $530,635 $36,429
1987 3,022,585 657,051 19,819
1988 3,569,197 843,645 15,816
1989 3,380,615 771,252 (18,214)
1990 3,526,171 884,275 (1,791)
1991 2,888,775 716,812 (6,976)
1992 2,732,920 728,845 118,987
1993 4,197,494 1,015,976 337,405
1994 6,559,036 1,383,467 97,840
1995 9,006,092 2,029,979 167,758
1996 9,920,208 2,326,709 151,566
1 Total income includes gross profit, interest income, and
other income.
Jack and Mary personally guaranteed all loans by banks to
petitioner.
C. Jack’s Duties
Jack exercised complete control over petitioner’s business
since it was founded (1973) and over petitioner since it was
incorporated (1977), including the years in issue. He served as
petitioner’s president, chief financial officer, chief executive
officer, general manager, sales manager, loan officer, credit
manager, purchasing officer, personnel manager, advertising
manager, insurance agent, real estate manager, and corporate
legal affairs liaison. With the exception of sales manager--Jack
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