Winston Knauss - Page 12

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          totaling $2,075 and cash of $35,800, but denied that these                  
          amounts represented charter receipts.                                       
               WDI                                                                    
               WDI was engaged in the construction and sale of condominium            
          units.  WDI reported gross receipts of $1,342,216 and $1,624,352            
          in 1995 and 1996, respectively.  Petitioner reviewed all of the             
          checks written from the WDI corporate account and often directed            
          the accounting code to which they should be charged.  In 1995,              
          petitioner directed that invoices for expenses associated with              
          the Sir Winston be paid by checks drawn on WDI’s corporate                  
          account.  WDI then deducted the yacht expenditures as expenses on           
          its 1995 Federal income tax return.  WDI’s bookkeeper questioned            
          petitioner about the payment of invoices for the yacht with                 
          checks drawn on the WDI corporate account and was specifically              
          instructed by petitioner to record the checks for the yacht                 
          expenses on WDI ledger accounts that he designated.  Some of the            
          checks for the yacht expenses were recorded on WDI’s books as               
          “repair and maintenance”, while others were recorded as additions           
          to an asset account for a condominium building under                        
          construction.  The amounts recorded as repair expenses were                 
          deducted on WDI’s 1995 return as current expenses.  The asset               
          account charges were included in the “cost of sales” for                    
          condominium units sold in 1995, resulting in a deduction in that            
          year.                                                                       






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