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a “Commission Expense” under “Cost of Goods Sold”. The $1,276
disbursement was deducted by the corporation as an “Advertising”
expense.
Lexus Payment
On July 10, 2001, HJ Builders made a payment of $12,155 to
“Lexus”. While there was a 2000 Lexus SUV registered to
Mr. Wright individually in 2001, no Lexus was registered in the
name of HJ Builders until the corporation acquired a 2003 Lexus
SUV. The check stub from the payment to Lexus listed the item
under the corporation’s code for “Loans payable P. Wayne Wright”.
The bill from Lexus was in Mr. Wright’s personal name, not in the
name of HJ Builders. No expense deduction was claimed by
HJ Builders for the payment to Lexus. The 2000 Lexus SUV was
driven exclusively by Mrs. Wright, who was not a salaried
employee of the corporation and was listed as a “housewife” on
the Wrights’ 2001 return. No mileage logs were kept by
Mrs. Wright or the corporation with respect to the 2000 Lexus.
Notices of Deficiency
The Internal Revenue Service (IRS) commenced an audit of the
Wrights’ 2001 Form 1040, U.S. Individual Income Tax Return,
because of the large percentage of charitable contributions
claimed ($18,000) to reported income ($61,176). The examining
agent also observed that the Wrights’ standard of living did not
appear supportable on their reported income. When the agent
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Last modified: May 25, 2011