-8-
Aurora Elsa Arnaiz (Arnaiz) is the sister of Rosas. She is
a citizen and resident of Mexico. On June 1, 1992, petitioner
issued additional shares of its stock to Arnaiz. Afterwards,
Arnaiz owned 52 percent of petitioner’s stock, and Rosas owned
the remaining 48 percent.
III. Petitioner’s Initial Tax Return
On September 14, 1992, petitioner filed a Form 1120-F with
respondent’s service center in Philadelphia, Pennsylvania
(Philadelphia Service Center), for its short taxable year from
June 27, 1991, through May 31, 1992 (1992 taxable year). The
return (petitioner’s initial return) was petitioner’s first
Federal income tax return. That return was prepared by Francisco
A.F. Cervantes (Cervantes), petitioner’s tax adviser and
certified public accountant in California. As to petitioner’s
1992 taxable year, petitioner’s initial return reported that
petitioner had no income or expense, that it had not engaged in a
trade or business in the United States, and that it had no
effectively connected income. Petitioner’s initial return also
reported that petitioner’s business activity was real estate and
that its product or service was investment. Petitioner’s initial
return also reported that petitioner was incorporated in Barbados
and that petitioner was subject to income tax under the laws of
Barbados.
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