Who is the taxpayer, corporation or sole proprietorship?
If you set up a corporation (or other entity) through which to transact your business, make sure you follow the rules. In Peter Wood (T.C. Memo. 2003-315) the IRS used the bank deposits method to reconstruct the taxpayer’s income from his jewelry business. The taxpayer claimed to have conducted business through a corporation. However, the Court noted that during the years at issue, the corporation, Native Skies, Inc., was inactive. During those years, no corporate bylaws and no minutes of any meetings of Native Skies, Inc., existed. During two of the years, the corporation did not file an annual registration form with the Secretary of State and was not in good standing in the State of Minnesota. The corporation did not file any federal income tax return, any federal employment tax return, or any information return with the IRS for any of the years at issue. Nor did Native Skies, Inc., issue any Form W-2 or any Form 1099 for any of those years. The Court found that the business was oper