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Yearend Financial Information
1993 1994 1995 1996
Gross Revenue $ 359,714 $5,246,515 $ 8,840,065 $13,580,098
Total Assets 4,287,799 7,391,115 12,001,652 14,611,042
Total Liabilities 4,119,859 6,638,531 10,443,799 11,392,737
Shareholder Equity 167,940 752,584 1,557,853 3,218,305
Debt-to-Equity Ratio 25:1 9:1 7:1 4:1
As of the time of trial in 2002, petitioner had yet to
declare or pay a cash dividend.
At the end of 1993, petitioner’s basis in its capital assets
including land, buildings, equipment, vehicles, tooling and
equipment was $3,598,463.
For 1993-1996 and for Federal income tax purposes,
petitioner was a cash basis taxpayer. On petitioner’s timely
filed 1996 corporate Federal income tax return, an interest
deduction of $93,746 was reflected for the payments designated as
interest that petitioner made in 1996 on the debenture notes.
On audit, respondent determined that for Federal income tax
purposes the total debenture funds of $1,337,500 represented
equity to petitioner rather than debt, and respondent denied
petitioner’s claimed $93,746 interest deduction relating to the
designated interest paid in 1996 on the debenture funds.
OPINION
As a general rule, section 163(a) provides that a deduction
shall be allowed for all interest paid on indebtedness.
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Last modified: May 25, 2011