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explained the “plan”: “And not having exact numbers to work
with, I suggested that we allocate the numbers based upon the
income of the corporation. When we get down to the end, we’ll
take whatever difference there is and put it into the middle
years.” The theory of allocating ERG payments for tax years
prior to payment was further refined in Jill Toibin’s letter to
the California Franchise Tax Board:
The corporation [NPI] receives royalties and performs
engineering services for a related entity * * * [ERG].
The corporation is a cash basis taxpayer. However, the
corporation was required to report as current income
any amounts constructively received, even though such
amounts were not actually paid in the current year.
* * *
During trial, Bradac was asked and answered as follows:
Q: Okay. Now was there a discussion at some point
between you and Admiral Benson of a desire to flow
profits from ERG to NPI?
A: I mean I don’t think of it in those terms, but
yes, I guess there would be discussion which entailed
that.
* * * * * * *
Q: Did you specifically recall, do you recall having
conversations with Admiral Benson about trying to keep
the profits of ERG down?
A: Yes.
* * * * * * *
Q: Did you have an understanding from Admiral Benson
that more of the profits of ERG could be passed, or
flowed to New Process through increasing deductions on
ERG’s returns?
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