Paul and Pauline D. Kessler - Page 3

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          Background                                                                  
               Petitioners timely filed their joint income tax returns for            
          1991, 1992, and 1993.  Petitioners were owners3 and operators of            
          a subchapter C corporation named Pauline’s Concrete Pumping,                
          Inc.4 (Pauline’s Concrete).  At the time the petition was filed,            
          petitioners resided in Philadelphia, Pennsylvania.                          
               On February 15, 1987, petitioners in their individual                  
          capacities entered into a “Master Lease Agreement” with Pauline’s           
          Concrete (the lease).  The lease contemplated that petitioners              
          would provide certain equipment to Pauline’s Concrete and that              
          Pauline’s Concrete was responsible for all costs, including the             
          costs associated with the acquisition and maintenance of the                
          equipment and for all the insurance costs.  The lease term was 10           
          years.  Attached to the lease was an exhibit which listed the               
          following equipment contemplated by the lease:                              










               3For the taxable years at issue, petitioners were the only             
          shareholders of Pauline’s Concrete Pumping, Inc.                            
               4The stipulations filed by the parties use the names                   
          “Pauline’s Concrete Pumping, Company,” “Pauline’s Concrete                  
          Pumping Company, Inc.,” and “Pauline’s Concrete Pumping Inc.”  It           
          is apparent that the stipulations refer to the same entity.                 




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