Ronald L. DeVault - Page 3

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               Respondent determined a deficiency in petitioner’s Federal             
          income tax of $7,981 for the taxable year 2000, as well as an               
          accuracy-related penalty under section 6662(a) in the amount of             
               The issues for decision are:                                           
               (1)  Whether petitioner was a shareholder in an S                      
          corporation during 2000 such that petitioner is required to                 
          report his pro rata share of the corporation’s income.  We hold             
          that he was.                                                                
               (2)  Whether petitioner is liable for the accuracy-related             
          penalty under section 6662(a).  We hold that he is not.                     
               Some of the facts have been stipulated, and they are so                
          found.  We incorporate by reference the parties’ stipulation of             
          facts and accompanying exhibits.                                            
               At the time that the petition was filed, petitioner resided            
          in Auburn, Washington.                                                      
               Petitioner first met Philip Turner (Mr. Turner) in 1993 when           
          they both worked at Modern Manufacturing, Inc. (Modern).2  In               
          June 1995, petitioner and Mr. Turner formed Union Machine, which            
          they later incorporated in the State of Washington on December              
          21, 1995.  Union Machine’s principal business was manufacturing             

               2  Around that time, petitioner worked as a first quality              
          inspector and quality control officer.  By trade, petitioner and            
          Mr. Turner are machinists.                                                  

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