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details: (1) His filing status on that return was married filing
separate; (2) he claimed exemptions for his three children; (3)
he reported adjusted gross income of $8,867; (4) he claimed
itemized deductions of $4,127; and (5) taxable income of zero.
The reported self-employment tax liability of $1,153 was not paid
until April 1992. Mr. Strong did not file a Federal income tax
return for 1989.
Respondent’s Income Determinations
Respondent determined in the notice of deficiency that SCC
was a taxable corporate entity and determined SCC’s net taxable
income in the years 1990-94. These determinations are disputed
as to the status of SCC as a taxpayer, the gross income, and the
allowable expenses. Respondent also determined in a separate
notice of deficiency that Mr. Strong received constructive
dividend income in the full amount of SCC’s net income. Both SCC
and Mr. Strong timely filed petitions with this Court.
OPINION
I. Is SCC A Taxable Entity?
SCC and Mr. Strong argue that SCC should be ignored for tax
purposes and was not a separate taxable entity apart from Mr.
Strong. A corporation is a separate taxable entity if it was
formed for a business purpose and engaged in business activity.
See Moline Props., Inc. v. Commissioner, 319 U.S. 436, 439
(1943); Strong v. Commissioner, 66 T.C. 12, 23-24 (1976), affd.
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