Mike J. Graham Trucking, Inc. - Page 4




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          Petitioner’s Tax Reporting                                                  
               Petitioner timely filed Forms 1120S, U.S. Income Tax Return            
          for an S Corporation, and related schedules, for 1991, 1992,                
          1993, and 1994.  On these returns, petitioner did not report                
          treating Graham, or any other individual, as an employee of                 
          petitioner.                                                                 
               Petitioner filed a Form 1120S for each of the years 1995,              
          1996, and 1997.  Petitioner reported ordinary income from its               
          trade or business of $14,261.62, $36,432.45, and $25,380.08 for             
          1995, 1996, and 1997, respectively.  Petitioner claimed no                  
          deduction either for compensation of officers or for salaries and           
          wages.  Schedules K-1, Shareholder’s Share of Income, Credits,              
          Deductions, etc., attached to the returns show the following                
          amounts as the pro rata share of, and as a property distribution            
          other than a dividend to, the stockholders:                                 
               Shareholder            1995           1996           1997              
          Graham and Mrs. Graham   $10,696.21     $27,324.33          --              
          Graham                        --             --        $15,228.04           
          Mrs. Graham                   --             --        3,807.01             
          Bethann Graham           3,565.41       9,108.12       6,345.03             
          Petitioner’s Forms 1120S were signed by Graham as president and             
          by Joseph M. Grey (Grey) as preparer.                                       
               During the period from 1995 to 1997, petitioner did not                
          issue any Forms 1099-MISC, Miscellaneous Income, or Forms W-2,              
          Wage and Tax Statement, to Graham.  Since petitioner’s                      







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