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Addition to Tax Penalty
Year Deficiency Sec. 6651(a) Sec. 6662(b)(1)
1992 $18,232 $1,330 $3,176
1993 8,347 1,442 --
1994 13,074 -– 2,615
After concessions by both parties, the section 6651(a)(1)
addition to tax relating to 1992 and all issues relating to 1993
were settled. The remaining issues for decision are whether:
(1) Petitioners failed to report income that Robert E. Kovacevich
(petitioner) received from Western Management, Inc. (Western);
(2) income reported by petitioners is properly classified as
gross receipts from a Schedule C business rather than as wages;
(3) petitioners are entitled to certain business deductions; and
(4) petitioners are liable for section 66621 penalties.
FINDINGS OF FACT
Petitioner was admitted to practice law in the State of
Washington in 1959. In 1981, petitioner incorporated Robert E.
Kovacevich, P.S., a Washington C corporation, whose name was
subsequently changed to Western Management, Inc. From its
incorporation through 1994, Western’s only source of income was
from the provision of legal services, and petitioner was
Western’s sole shareholder, president, and secretary-treasurer.
In 1981, Western’s board of directors voted to pay petitioner
1 Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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Last modified: May 25, 2011