Bradley M. Cohen and Kathy A. Cohen - Page 3




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          existence, BMC elected to be treated as an S corporation.  BMC              
          maintained a bank account with Corestates Bank (BMC account), and           
          petitioner deposited $59,609.62 into this account during 1996.              
          BMC did not file a 1996 Form 1120S, U.S. Income Tax Return for an           
          S Corporation, to report the $59,609.62 as gross receipts.  The             
          deposits into the BMC account were not reported as income on                
          petitioners’ 1996 return or otherwise accounted for by                      
          petitioners.                                                                
          Nationwide Home Improvement Limited                                         
               Petitioner was also the sole shareholder and sole corporate            
          officer of Nationwide Home Improvement Limited (NHIL) during                
          1996.  NHIL conducted remodeling services and aided customers in            
          securing financing for improvements.  Petitioner filed a                    
          Form 2553, Election by a Small Business Corporation, to change              
          the status of NHIL from a C corporation to an S corporation                 
          effective as of January 1, 1996.  The Internal Revenue Service              
          (IRS) approved the election in 1995.                                        
               During 1996, petitioner provided management services to                
          NHIL, working about 20 to 30 hours per week.  These services                
          included petitioner’s meeting with clients and conducting sales             
          for NHIL.  NHIL paid $20,680 to petitioner as compensation for              
          the management services provided.  On NHIL’s return, the                    
          preparer, Joseph M. Grey (Grey), treated this amount as                     
          compensation paid to an officer.                                            






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