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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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