Joseph A. and Sari F. Deihl - Page 2

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               Donald W. MacPherson and Bradley Scott MacPherson, for                 
          petitioners.                                                                
               Jonae A. Harrison and J. Robert Cuatto, for respondent.                


                       MEMORANDUM FINDINGS OF FACT AND OPINION                        

               WHERRY, Judge:  In these consolidated cases, respondent                
          determined the following deficiencies and penalties with respect            
          to petitioners’ Federal income taxes:                                       
                                                            Penalty                   
                    Year           Deficiency          Sec. 6662, I.R.C.              
                    1996           $1,364,714          $272,942.80                    
                    1997           2,348,943           608,473.00                     
                    1998           1,108,775           221,755.00                     
          After concessions by the parties, the principal issues for                  
          decision are:                                                               
               (1) Whether petitioners are entitled to deductions claimed             
          through and in connection with expenditures of two related S                
          corporations, Mayor Pharmaceutical Laboratories, Inc. (Mayor),              
          and KareMor International, Inc. (KareMor), for the taxable years            
          1996, 1997, and 1998;                                                       
               (2) whether petitioners are entitled to include in the cost            
          of goods sold for Mayor an amount claimed for purchases in 1998;            
               (3) whether petitioners are entitled to a reduction in                 
          adjusted gross income of $550,000 for the taxable year 1996; and            







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