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Kovacevich and his wife (Kovacevichs) maintained, at Farmers
and Merchant’s Bank, a personal line of credit. On the corporate
ledgers, Moe listed the checks written to Farmers and Merchants
Bank and MBNA in the “Receivable from Officer” account. These
checks had an “LN” memo description, indicating that the payment
related to a loan or the “Receivable from Officer” account.
From 1982 through 1992, petitioner sponsored a defined
benefit plan for Kovacevich, its only participant. In 1982 and
1984, petitioner contributed $46,473 and $81,822, respectively,
to the plan.
Petitioner’s fiscal year ends on March 31. On its corporate
income returns for 1994 and 1995, petitioner deducted officers’
compensation expenses in the amounts of $132,000 and $133,000,
respectively. Kovacevich, in his capacity as president, amended
petitioner’s 1991 Form 941, Employer's Quarterly Federal Tax
Return, with the following statement:
The amount of earnings of Employee Robert E. Kovacevich
was not clear, hence was left off. The Employee paid
all Income Tax due, hence the withholding is
unnecessary. However the Social Security Tax is due.
A completed W-2(c) term is included.
On April 28, 1999, respondent sent petitioner a notice of
determination, in which respondent determined that Kovacevich was
an employee for Federal employment tax purposes and that
petitioner was not entitled, pursuant to section 530, to relief
from such classification. Enclosed with the notice of
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