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Petitioners, husband and wife, filed joint Federal income
tax returns for 1996, 1997, 1998, and 1999. Petitioner was
employed by IMC, beginning in 1994 and during the years in issue.
IMC made motor controls for blood pumps, and, later, developed
digital inspection hardware and software for the jewelry
industry. IMC’s products included a patented device to analyze
and appraise diamonds. Petitioner was employed to design and
manufacture IMC’s products.
For each of 1994, 1995, and 1996, petitioner received Forms
W-2, Wage and Tax Statement, from IMC, reporting his wages.
Petitioner’s Form W-2 for 1995 reported $42,000 in gross wages.
Petitioner’s Form W-2 for 1996 reported $7,000 in gross wages.
The amount reported on petitioner’s 1996 Form W-2 represented
wages paid to him between January and March 1996.
John Kerkinni was the sole shareholder, CEO, and president
of IMC. He never took a salary from IMC. Mr. Kerkinni met
petitioner in 1980 when they worked together for another
corporation. In 1994, Mr. Kerkinni called petitioner and asked
him to come work for IMC to develop the equipment to analyze
diamonds. Petitioner did not have an ownership interest in IMC.
In designing and manufacturing IMC’s products, petitioner and
other IMC employees used tools and equipment that petitioner had
personally owned for many years (petitioner’s old tools).
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