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reference to EAPC, on documents accounting for expenses,
payments, and sales commissions connected with her real estate
practice associated with Coldwell Banker.
Mr. Arnold was the 100-percent owner of Pacific Controller,
Inc. (PCI). Mr. Arnold operated PCI as a vehicle for his
accounting and tax preparation business. Mr. Arnold assigned to
PCI the payments he received from customers for his personal
accounting services. PCI has never paid Mr. Arnold wages or a
salary. Mr. Arnold had complete control over whether PCI paid
and/or reported wages to him. PCI has never withheld payroll
taxes on the money it distributed to Mr. Arnold. There was no
contract between Mr. Arnold and PCI giving PCI the right to
control Mr. Arnold’s performance of services.
EAPC and PCI are S corporations. Petitioners reported
nonpassive income (distributions of net income after expenses)
from EAPC and PCI on Schedules E, Supplemental Income and Loss,
of their 2002 and 2003 joint Federal income tax returns. Mr.
Arnold prepared the 2002 and 2003 tax returns for petitioners,
EAPC, and PCI. Petitioners reported zero wage income on their
2002 and 2003 joint Federal income tax returns.
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Last modified: November 10, 2007