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effect for the fiscal year in issue. All Rule references are to
the Tax Court Rules of Practice and Procedure.
Respondent determined a deficiency in petitioner’s Federal
income tax of $30,447 for the taxable year ended May 31, 1995,
and an addition to tax pursuant to section 6662(a) in the amount
of $6,089.40.
The issues for decision are: (1) Whether petitioner failed
to report income in the amount of $120,371 for the year ended May
31, 1995; and (2) whether petitioner is liable for an accuracy-
related penalty pursuant to the provisions of section 6662(a) in
the amount of $6,089.40.
Some of the facts have been stipulated and are so found.
The stipulations of fact and the attached exhibits are
incorporated herein by this reference. Petitioner’s principal
place of business was in California on the date the petition was
filed in this case.
Background
DAK, Inc. (hereinafter petitioner) operates a restaurant in
Malibu, California, known as Moonshadows Restaurant
(Moonshadows). The restaurant is located on the Pacific Coast
Highway in Malibu and overlooks the Pacific Ocean. The
Moonshadows premises is owned by Dr. Robert Shlens (Dr. Shlens).
On October 1, 1991, Mr. Marvin Kelson (Mr. Kelson) was the
principal of petitioner and entered into a lease with Dr. Shlens
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