Universal Marketing, Inc. - Page 4




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          shareholder.  Petitioner provided minimal services for CTC in FYE           
          May 31, 1996.                                                               
               During FYE May 31, 1996, petitioner provided the following             
          marketing and advertising services for VVI:  Photographed models            
          and VVI products, sponsored pro and semipro athletes, sponsored             
          various sporting events,4 negotiated with retail stores and                 
          distributors to sell VVI’s products, including developing and               
          distributing advertising displays and posters to these stores,              
          and promoted VVI’s traveling trade shows.                                   
          D.   Petitioner’s Financial Condition and Employee Compensation             
               On its Form 1120, U.S. Corporation Income Tax Return, for              
          FYE May 31, 1996, petitioner reported gross receipts of                     
          $1,055,433, with total income of $1,143,468.5  After petitioner             
          deducted a $500,000 bonus and a $9,000 salary as executive                  
          compensation to Mr. Reeves, $31,757 as salary and wages to its              
          employees, $113,369 for a supplies business expense, and $426,963           
          in various other deductions, petitioner’s taxable income was                
          $62,379 with a total tax of $21,2096 and a net income book value            




               4 Sporting events included volleyball and waterskiing                  
          competitions.                                                               
               5 Total income included gross rents of $67,347 and gross               
          royalties of $20,688.                                                       
               6 The total tax due included an estimated tax penalty of               
          $1,029.                                                                     





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