Van Camp & Bennion v. United States

Van Camp & Bennion, P.S. (“the corporation”) claimed a refund of taxes and .penalties paid following an Internal Revenue Service (“IRS”) audit. The district court held that the corporation was entitled to a refund in part and remained liable for specific employment taxes and penalties. 1 The corporation appeals. We affirm in part, reverse in part and remand.

I

In 1985, Walter R. Van Camp and Irving R. Bennion, attorneys, became shareholders of the appellant professional services corporation. Van Camp owned 60% of the stock and Bennion owned 40%. The corporation’s president was Van Camp; Bennion was the vice-president and secretary-treasurer.

Van Camp specialized in personal injury law and professionally attracted clients seeking legal services. The corporation did not provide retirement benefits or malpractice insurance for Van Camp. Salary payments were irregular because corporate income was primarily derived from contingency fee agreements. Van Camp’s personal expenses were often paid by the corporation and later charged against his salary.

The corporation’s tax returns were prepared by an accountant who had full access to the corporation’s books and records. The accountant…