Vitamin Village, Inc. - Page 2




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               After concessions,2 the issues for decision are:  (1)                  
          Whether the amounts paid to petitioner’s sole executive and                 
          shareholder during the fiscal years at issue constituted                    
          reasonable compensation under section 162(a)(1); (2) whether                
          petitioner is entitled to deduct advertising expenses under                 
          section 162(a) of $1,105,276 for FYE June 30, 1996; and (3)                 
          whether petitioner is entitled to depreciate costs incurred in              
          constructing a houseboat, a floating garage, and a dock under               
          section 167(a)(1) during the fiscal years at issue.                         
                                  FINDINGS OF FACT                                    
               The parties’ stipulation of facts and the attached exhibits            
          are incorporated herein by this reference, and the facts                    
          stipulated are so found.  At the time the petition was filed,               
          petitioner maintained its business office in Wilsonville, Oregon.           
          A.   Petitioner’s Business History                                          
               Petitioner was incorporated by Daniel L. Reeves in the State           
          of Oregon in 1979.3  Petitioner, an accrual basis taxpayer with             

               1(...continued)                                                        
          the Internal Revenue Code, as amended, and Rule references are to           
          the Tax Court Rules of Practice and Procedure.  Amounts are                 
          rounded to the nearest dollar.                                              
               2 At trial, respondent conceded that petitioner was entitled           
          to deduct a net operating loss of $320,845 in FYE June 30, 1996,            
          carried back from its FYE June 30, 1998.  On brief, petitioner              
          conceded it failed to report interest income of $11,516 in FYE              
          June 30, 1996.                                                              
               3 Mr. Reeves originally founded petitioner with two other              
                                                             (continued...)           






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