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pickup and delivery services for clients on behalf of petitioner.
No other person provided any services to petitioner.
During the period in issue, petitioner received client
referrals from Pyle Transport Services, Inc. (Pyle Transport), of
West Chester, Pennsylvania. Ludlow performed services on behalf
of petitioner pursuant to an “Independent Contractor Service
Agreement” between petitioner and Pyle Transport, dated March 25,
1993, and identifying Ludlow as the driver for petitioner.
During 1996, 1997, and 1998, petitioner maintained a
business/commercial checking account. Ludlow shared signature
authority on petitioner’s account with his spouse. Petitioner
did not make regular payments at fixed times to Ludlow for his
services. Rather, Ludlow, or his wife, obtained funds from
petitioner’s bank account to pay Ludlow 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 timely filed Forms 1120S, U.S. Income Tax Return
for an S Corporation, and related schedules, for 1989 through
1995. On these returns, petitioner did not report treating
Ludlow, 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 $15,605.36, $27,362.14, and $38,486.89 for
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