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the tax of a shareholder of an S corporation for the
shareholder’s taxable year, the shareholder’s pro rata share of
the corporation’s items of income, loss, deduction, or credit
must be taken into account. Sec. 1366. As the sole shareholder
of Flair Enterprises, the adjustments to the company’s ordinary
income would flow through to petitioner and be included on
petitioner’s individual income tax returns for the years in
issue. The evidence establishes that petitioner’s solely owned S
corporation received and failed to report taxable income for the
years in issue.
During the years in issue, Mrs. Haney regularly cashed
checks from noninsurance customers and checks received from
COPART, B&H, and Hudiburg Chevrolet. Office procedures at Flair
Enterprises required that two sets of books be maintained.
Cashed checks were listed in a handwritten notebook, but not
posted to the company’s computer system. Checks from insurance
customers were deposited in Flair Enterprises’ bank account, not
cashed, and were recorded in the company’s computer system. Only
deposited checks were included as income on the tax returns of
Flair Enterprises for the years in issue. Several of
petitioners’ family members participated in this dual record-
keeping process, by which petitioners were able to avoid
reporting substantial amounts of income received by the company.
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Last modified: November 10, 2007