King's Court Mobile Home Park, Inc. v. Commissioner
United States Tax Court
Petitioner's shareholder, who together with his wife owned all of petitioner's stock, diverted income from petitioner. Petitioner omitted such income from its original return for the taxable year but filed a timely amended return including such income but claiming an offsetting deduction for "wages paid" to the shareholder.
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Petitioner's shareholder, who together with his wife owned all of petitioner's stock, diverted income from petitioner. Petitioner omitted such income from its original return for the taxable year but filed a timely amended return including such income but claiming an offsetting deduction for "wages paid" to the shareholder. Held, the deduction for "wages paid" is not allowable because the amounts in question were not paid as compensation; they constituted constructive dividends. Held, further, the issue of fraud is resolved on the basis of the amended return not the original return, since the…
1Opinion of the Court
OPINION
TANNENWALD, Judge:
Respondent determined a deficiency-in and additions to petitioner's Federal income tax for its taxable year ending May 31, 1986:
_Additions to tax_
Deficiency Sec. 6653(b)(1)1 Sec. 6653(b)(2) Sec. 6661
$25,203 $12,601 50 percent of the $6,301 interest due on the deficiency
The main issue for decision is whether funds diverted from petitioner by its controlling shareholder constitute dividends or wages paid. If we decide that they were dividends, the issues involving the applicability of sections 6653(b)(1) and (2) and 6661 will have to be resolved.
This case was submitted…
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