Rainbow Tax Service, Inc. - Page 2

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               SWIFT, Judge:  Respondent determined deficiencies of $11,903           
          and $5,003, respectively, in petitioner’s Federal income taxes              
          for petitioner’s tax years ending June 30, 2002 and 2003.                   
               Unless otherwise indicated, all section references are to              
          the Internal Revenue Code in effect for the years in issue.                 
               The issue for decision is whether petitioner’s tax return              
          preparation and bookkeeping services are to be treated as                   
          accounting services.  If so, petitioner will be treated as a                
          qualified personal service corporation under section 448(d)(2)              
          and will be subject to the flat 35-percent tax rate set forth in            
          section 11(b)(2).                                                           

                                  FINDINGS OF FACT                                    
               Most of the facts have been stipulated and are so found.               
               At the time the petition was filed, petitioner’s principal             
          place of business was located in Las Vegas, Nevada.                         
               In 1978, Steve Rodgers (Rodgers) incorporated petitioner as            
          a Nevada corporation, and until his death in 2002 Rodgers owned             
          all of petitioner’s stock.  Petitioner’s business consisted of              
          providing tax return preparation and bookkeeping services, which            
          services Rodgers and other individuals provided as petitioner’s             
               Over the years, Rodgers, on petitioner’s behalf, increased             
          the number of petitioner’s clients and the number of employees to           
          perform for petitioner’s clients tax return preparation and                 

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Last modified: May 25, 2011