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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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