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home improvement business. Stark controlled the day-to-day
activities of petitioner.
During 1996, 1997, and 1998, all moneys that were paid on
accounts receivable of petitioner were deposited into
petitioner’s checking account. Stark was the only person with
signature authority on petitioner’s account. Petitioner did not
make regular payments at fixed times to Stark for his services.
Rather, Stark obtained funds from petitioner’s bank account to
pay himself as his needs arose. Petitioner neither classified
any payment as a dividend nor distributed any dividends to
shareholders from 1996 through 1998.
Petitioner’s Tax Reporting
Petitioner filed Forms 1120S, U.S. Income Tax Return for an
S Corporation, and related schedules, for 1987 through 1995. On
these returns, petitioner did not report treating Stark, or any
other individual, as an employee of petitioner.
Petitioner filed a Form 1120S for each of the years 1996,
1997, and 1998. Petitioner reported ordinary income from its
trade or business of $10,866.14, $14,216.37, and $7,103.60 for
1996, 1997, and 1998, 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 $10,866.14 for
1996, $14,216.37 for 1997, and $7,103.60 for 1998 as the pro rata
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