T.C. Memo. 1997-324
UNITED STATES TAX COURT
DOUGLAS R. AND JANE E. PRINCE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
DOUGLAS R. PRINCE, D.D.S., M.S., P.C., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 22467-93, 8457-94.1 Filed July 15, 1997.
Richard M. Kates, for petitioners.
James S. Stanis, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
WELLS, Judge: Respondent determined deficiencies in and
additions to petitioners' Federal income tax as follows:
1
These cases were consolidated for purposes of trial,
briefing, and opinion.
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Douglas R. and Jane E. Prince, docket No. 22467-93
Additions to Tax
Sec. Sec. Sec. Sec.
Year Deficiency 6651(a)(1) 6653(a)(1)(A) 6653(a)(1)(B) 6661(a)
1
1987 $76,684 19,360 4,213 19,171
1
50 percent of the interest due on the deficiency.
Douglas R. Prince, D.D.S., M.S., P.C., docket No. 8457-94
Additions to Tax
Taxable Secs. Secs.
Year Ending Sec. 6653(a)(1)/ 6653(a)(2)/ Sec.
June 30 Deficiency 6651(a)(1) 6653(a)(1)(A) 6653(a)(1)(B) 6661(a)
1
1986 $24,683 - 1,234 6,171
1
1987 40,087 2,067 2,067 10,022
Additions to Tax
Taxable Secs. Secs.
Year Ending Increase Sec. 6653(a)(1)/ 6653(a)(2)/ Sec.
Dec. 31 in Tax 6651(a)(1) 6653(a)(1)(A) 6653(a)(1)(B) 6661(a)
1
1987 $7,348 - 367 -
1988 29,345 2,935 1,467 - 7,336
1
50 percent of the interest due on the deficiency.
Unless otherwise indicated, all section and Code references
are to the Internal Revenue Code as in effect for the years in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
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After concessions,2 the issues to be decided are:
A. Issues With Respect to Petitioners Douglas R. Prince and
Jane E. Prince3
1. Whether petitioners Douglas R. Prince and Jane E.
Prince have substantiated their claimed deduction for certain
interest for their 1988 taxable year as a part of a loss
carryback to their 1987 taxable year;
2. whether a certain loan from a pension plan is
includable in their gross income pursuant to section 72(p) for
their 1988 taxable year;
2
The notice of deficiency that was sent to petitioners
Douglas R. Prince and Jane E. Prince listed adjustments to income
for their taxable years 1986, 1987, and 1988. Respondent,
however, determined a deficiency in their income for only taxable
year 1987. Prior to and during trial, the parties stipulated all
of the adjustments to taxable year 1986 and most of the
adjustments to taxable years 1987 and 1988. We note that some of
the stipulations are based upon amounts that are different than
those set forth in the notice of deficiency.
The notice of deficiency that was sent to petitioner Douglas
R. Prince, D.D.S., M.S., P.C. listed adjustments to income for
its taxable years ended June 30, 1986; June 30, 1987; Dec. 31,
1987; and Dec. 31, 1988. The parties stipulated most of the
adjustments for the taxable years in issue. Additionally,
respondent conceded that petitioner Douglas R. Prince, D.D.S.,
M.S., P.C. is entitled to additional recovery deductions pursuant
to section 168, which were not included in the notice of
deficiency.
3
In their petition, petitioners disputed respondent's
determinations concerning the alternative minimum tax for taxable
year 1987 and the percentage limitations on passive activity
losses for taxable years 1987 and 1988. Petitioners, however,
make no argument on brief concerning these issues. Consequently,
we consider such issues to have been conceded. Rybak v.
Commissioner, 91 T.C. 524, 566 (1988).
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3. whether they are liable for additions to tax pursuant
to sections 6651, 6653, and 6661 for their 1987 taxable year.
B. Issues With Respect to Petitioner Douglas R. Prince, D.D.S.,
M.S., P.C.
1. Whether certain payments made by petitioner Douglas R.
Prince, D.D.S., M.S., P.C. to petitioner Douglas R. Prince are
deductible as compensation expenses pursuant to section 162; and
2. whether petitioner Douglas R. Prince D.D.S., M.S., P.C.
is liable for additions to tax pursuant to sections 6651, 6653,
and 6661.
FINDINGS OF FACT
Some of the facts have been stipulated for trial pursuant to
Rule 91. The parties' stipulations of facts are incorporated
herein by reference and are found as facts in the instant case.
During the relevant taxable years, petitioner Douglas R.
Prince (hereinafter individually referred to as petitioner) owned
all of the stock of petitioner Douglas R. Prince, D.D.S., M.S.,
P.C., a professional corporation (hereinafter referred to as the
corporation) that was organized pursuant to the laws of the State
of North Dakota.
At the time the petition in docket No. 22467-93 was filed,
petitioners Douglas R. Prince and Jane E. Prince (hereinafter
jointly referred to as petitioners) resided in DuPage County,
Illinois. At the time the petition in docket No. 8457-94 was
filed, the corporation's principal office was at 358 East First
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Street, Dickinson, North Dakota. The corporation's taxable year
was a fiscal year ending June 30 for taxable years ending June
30, 1986 and 1987. During 1987, however, the corporation changed
its taxable year to a calendar year.
During the relevant taxable years, petitioner was an
orthodontist who maintained, through the corporation, an
orthodontic practice with locations in Dickinson, North Dakota;
Williston, North Dakota; Sidney, Montana; Glendive, Montana; and
Miles City, Montana. Petitioner was the only orthodontist in the
corporation's orthodontic practice, for which he was paid a
salary by the corporation.
In its books and records, the corporation maintained a "Loan
and Exchange" account receivable from petitioner (the loan and
exchange account). The corporation made payments to and for the
benefit of petitioner for both corporate and personal expenses
and increased the amount in the loan and exchange account to
reflect the amounts of such payments. Additionally, the
corporation made certain payments to and for the benefit of
petitioner that were not from the loan and exchange account. At
the end of the corporation's taxable year, the corporation's
accountant classified payments from the loan and exchange account
as either corporate expenses or personal expenses. Generally,
amounts that were classified as personal expenses were treated as
compensation to petitioner and were reported on petitioner's Form
W-2.
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On its Federal income tax returns and amended returns, the
corporation claimed deductions for compensation payments to
petitioner as follows:
Taxable Year Ending Original Return Amended Return
June 30, 1986 $446,781 no change
June 30, 1987 379,694 $364,694
Dec. 31, 1987 49,782 181,718
Dec. 31, 1988 430,002 no amended return filed
On their Federal income tax returns and amended return,
petitioners included in their gross income compensation payments
from the corporation as follows:
Taxable Year Original Return Amended Return
1986 $446,781 $253,167
1987 344,316 no amended return filed
1988 430,002 no amended return filed
During 1988, petitioner sold a rental building in Yorkville,
Illinois (the Yorkville building). Petitioner was personally
liable for a loan secured by the Yorkville building (the
Yorkville loan). At the time of the sale, the interest on the
Yorkville loan was in arrears. On their 1988 Federal income tax
return, petitioners reported gain on the sale of the Yorkville
building and claimed on their Schedule E an interest expense on
the Yorkville loan in the amount of $74,723. In the notice of
deficiency, respondent determined a loss on the sale of the
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Yorkville building but disallowed the interest expense claimed by
petitioners.
Prior to and continuing through the relevant taxable years,
the corporation maintained the Douglas R. Prince, D.D.S., M.S.,
P.C. Pension Plan and Trust (the pension plan), in which
petitioner was a participant. The pension plan was a qualified
trust within the meaning of section 401(a).
On or about March 14, 1986, the pension plan made a loan in
the amount of $50,000 to petitioner (the original loan). The
original loan, which was secured by petitioner's vested benefit
in the pension plan, was to be repaid on April 1, 1988, with
interest at the rate of 13.75 percent per annum. On the due date
of the original loan, the principal and interest on the original
loan were not paid but were instead rolled over into a new loan
(the renewed loan). Neither the original loan nor the renewed
loan contained a provision for "level amortization" of the
principal. At all relevant times, the present value of one-half
of petitioner's "accrued benefit" under the pension plan exceeded
$100,000.
Petitioners did not include the original loan or the renewed
loan in their gross income on their Federal income tax returns
for the years in issue. Respondent determined that the renewed
loan did not provide for "level amortization" as required by
section 72(p)(2)(C) and concluded that the renewed loan did not
qualify for the section 72(p)(2)(A) exception. Consequently,
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respondent determined that the renewed loan was a taxable
distribution to petitioners for their 1988 taxable year pursuant
to section 72(p)(1)(A).
On its Federal income tax returns for the taxable years in
issue, the corporation characterized certain payments that it
made to and for the benefit of petitioner from the loan and
exchange account and another account as business deductions.
Respondent disallowed certain deductions on the grounds that the
corporation did not establish a business purpose for the
payments. Consequently, respondent recharacterized the payments
as constructive dividends that were not deductible to the
corporation (the disallowed corporate payments).4
OPINION
The first issue we decide is whether the corporation is
entitled to deduct certain disallowed corporate payments as
compensation expenses pursuant to section 162.5 The corporation
contends that the disallowed corporate payments are compensation
for petitioner's services and, therefore, are deductible pursuant
4
See appendix for a listing of the disallowed corporate
payments and the parties' concessions.
5
Respondent has conceded that the corporation is entitled to
deduct certain disallowed corporate payments and to depreciate
certain other disallowed corporate payments. The corporation
also has conceded certain disallowed corporate payments.
Accordingly, the corporation seeks to deduct all remaining
disallowed corporate payments. See appendix.
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to section 162. The corporation bears the burden of proof. Rule
142(a).
Section 162(a)(1) allows as a deduction all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including "a reasonable
allowance for salaries or other compensation for personal
services actually rendered". To deduct payments as compensation
expenses pursuant to section 162, the taxpayer must establish
that the payments are: (1) Reasonable, and (2) intended to be
payments purely for services. Elliotts, Inc. v. Commissioner,
716 F.2d 1241, 1243 (9th Cir. 1983), revg. and remanding on
another issue T.C. Memo. 1980-282; Paula Constr. Co. v.
Commissioner, 58 T.C. 1055, 1058 (1972), affd. without published
opinion 474 F.2d 1345 (5th Cir. 1973); Electric & Neon, Inc. v.
Commissioner, 56 T.C. 1324, 1340 (1971), affd. without published
opinion 496 F.2d 876 (5th Cir. 1974); sec. 1.162-7(a), Income Tax
Regs. Whether the taxpayer has shown the requisite intent to
treat the payments as compensation is a factual question to be
decided on the basis of the particular facts and circumstances.
Electric & Neon, Inc. v. Commissioner, supra. "Where officer-
shareholders, who are in control of a corporation, set their own
compensation, careful scrutiny is required to determine whether
the alleged compensation is in fact a distribution of profits."
Home Interiors & Gifts, Inc. v. Commissioner, 73 T.C. 1142, 1156
(1980).
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Applying the foregoing requirements, we must decide whether
the corporation has established that it intended to treat the
disallowed corporate payments as compensation for petitioner's
services. The corporation contends that it mistakenly treated
the disallowed corporate payments that were made from the loan
and exchange account as corporate expenses instead of personal
expense payments. It argues that, consistent with its
established practice of treating personal expenses as
compensation to petitioner, the disallowed corporate payments
should be treated as compensation to petitioner. The corporation
argues that its intent is not altered by the fact that the
accountant made a mistake in characterizing the payments.
Additionally, the corporation contends that petitioner generated
all of the income of the corporation and that all of the
disallowed corporate payments therefore should be treated as
compensation to petitioner.
Based on our review of the record before us, we conclude
that the corporation has not established that it intended to
treat the disallowed corporate payments as compensation for
petitioner's services when the payments were made. The
corporation's arguments on brief that the disallowed corporate
payments were characterized incorrectly and that petitioner
generated all of the corporation's income do not establish the
requisite intent to treat the corporate payments as compensation
for petitioner's services. The question is whether the
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corporation intended the disallowed corporate payments to be
compensation to petitioner when they were made. Paula Constr.
Co. v. Commissioner, supra at 1059. Moreover, we decide the case
in light of what was done, not what might have been done. Id. at
1060 (and cases cited therein).
The record in the instant case lacks any credible evidence
of the corporation's intent to treat the disallowed corporate
payments as compensation for petitioner's services when the
payments were made. For the taxable years in issue, the
corporation characterized certain amounts other than the
disallowed corporate payments on its Federal income tax returns
and petitioner's Forms W-2 as compensation to petitioner, which
compensation was included as compensation income on petitioners'
Federal income tax returns. However, neither books or records of
the corporation nor testimony were offered to establish that the
corporation intended to treat the disallowed corporate payments
as compensation for petitioner's services. Moreover, the
disallowed corporate payments were not characterized as payments
of compensation to petitioner on the corporation's Federal income
tax returns or on the Forms W-2 that it furnished to petitioner.
Finally, the disallowed corporate payments were not reported as
income on petitioners' Federal income tax returns. Based on the
record in the instant case, we are not persuaded that the
corporation intended to treat the disallowed corporate payments
as compensation for petitioner's services when the payments were
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made.6 Accordingly, we hold that the corporation is not entitled
to deduct the disallowed corporate payments as compensation
expenses pursuant to section 162 for the taxable years in issue.
We next consider the issue concerning petitioners' interest
expense deduction for the Yorkville loan. On Schedule E of their
1988 Federal income tax return, petitioners claimed an interest
expense on the Yorkville loan in the amount of $74,723, which
respondent disallowed.7 Respondent contends that petitioners did
not substantiate that interest on the Yorkville loan was paid.
Alternatively, respondent argues that petitioners did not prove
that the interest on the Yorkville loan was paid from the
6
As we have concluded that petitioners have not established
the requisite intent, we need not address the requirement that
the payment be reasonable.
7
At trial, the parties consented to the trial of the issue of
whether petitioners are entitled to deduct the interest expense
on the Yorkville loan for taxable year 1988. In the notice of
deficiency, respondent disallowed the interest expense in the
adjustment to the category "Rental Loss (Schedule E)" for taxable
year 1988. We note that the notice of deficiency transposed the
names of the adjustments to income entitled "Constructive
Dividend" and "Rental Loss (Schedule E)". Additionally, we note
that, during the course of the proceedings in this Court,
respondent asserted that the amounts in issue in the category
"Rental Loss (Schedule E)" should be increased for taxable years
1987 and 1988, but did not file a motion for leave to amend the
answer. The parties' stipulations as to taxable years 1987 and
1988 are based upon the increased amounts, which are deemed
amendments to the pleadings pursuant to Rule 41(b). Nonetheless,
as the interest expense on the Yorkville loan was disallowed in
the notice of deficiency, petitioners bear the burden of
establishing that respondent's determination was erroneous. Rule
142(a).
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proceeds of the sale of the Yorkville building. Petitioners
argue that they have substantiated their interest expense.
To substantiate their interest payment on the Yorkville loan
petitioners rely on petitioner's testimony and an interest
statement. At trial, petitioner testified that, at the closing
of the sale on the Yorkville building, the interest on the loan,
which was in arrears, was paid from the proceeds from the sale.
Additionally, the record contains a copy of a statement from
First Midwest Bank/Illinois that states, in part: "the interest
paid on your loan account in 1988 was $74,722.55." Respondent
concedes that the loan account related to the Yorkville loan.
Based on the foregoing, we are satisfied that the interest on the
Yorkville loan was paid.
Respondent's contention that petitioners did not prove that
the proceeds from the sale of the Yorkville building were used to
make the interest payment is misplaced. Where there is no
allegation that the funds to pay the interest were borrowed from
the creditor, there is no requirement that the source of the
funds used to make the interest payment be traced. Respondent
has not cited, and we are unable to find, any authority to the
contrary. Consequently, the failure of petitioners to establish
that the sale of the Yorkville building produced sufficient
proceeds to pay off the Yorkville loan is immaterial. The only
fact petitioners must establish is that the interest on the
Yorkville loan was paid, and that fact is shown by petitioner's
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uncontroverted testimony which was corroborated by the interest
statement from the bank. Consequently, we conclude that
petitioners are entitled to an interest expense deduction in the
amount of $74,722.55 for their taxable year 1988.
The next issue to be decided is whether the loan from the
pension plan is a taxable distribution to petitioners pursuant to
section 72(p)(1)(A).8 As stated in our findings, on or about
March 14, 1986, the pension plan made a loan to petitioner in the
amount of $50,000, which was to be repaid on April 1, 1988, with
interest at the rate of 13.75 percent per annum (the original
loan). On the due date of the original loan, the principal and
interest on the original loan were not paid but were instead
rolled over into a new loan (the renewed loan). Neither the
original loan nor the renewed loan contained a provision for
"level amortization" of the principal. At all relevant times,
8
Respondent raised this issue at trial, and petitioners
waived their objection to the trial of the issue. Consequently,
the issue was tried by consent pursuant to Rule 41(b).
Respondent argues that, as the pension issue affects the loss
carryback from petitioners' 1988 taxable year to their 1987
taxable year that petitioners raised at trial, petitioners bear
the burden of proof as to the issue. Additionally, respondent
contends that, as the notice of deficiency treated the accrued,
unpaid interest on the pension plan loan as a taxable
distribution to petitioners, the issue is not a new matter for
which respondent bears the burden of proof pursuant to Rule
142(a). We disagree. In the notice of deficiency, the principal
amount of the loan is not included as an adjustment to
petitioners' income. Consequently, we conclude that the issue is
a "new matter" within the meaning of Rule 142(a), on which issue
respondent bears the burden of proof.
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the present value of one-half of petitioner's "accrued benefit"
under the pension plan exceeded $100,000.
Section 402(a) provides that, with exceptions not here
relevant, distributions from a qualified plan are taxable to the
distributee, in the taxable year of the distributee in which
distribution occurs, pursuant to section 72. Section 72(p)(1)(A)
provides the general rule that loans from a qualified employer
plan to plan participants or beneficiaries are treated as taxable
distributions. Section 72(p)(2)(A), however, provides an
exception to the general rule for any loan to the extent that
such loan (when added to the outstanding balance of all other
loans from the plan) does not exceed the lesser of: (1) $50,000
(reduced under conditions not here relevant), or (2) the greater
of one-half of the present value of participant's "nonforfeitable
accrued benefit" under the plan or $10,000.9 The exception
provided in section 72(p)(2)(A) does not apply unless: (1) The
loan, by its terms, is required to be repaid within 5 years, sec.
72(p)(2)(B), and (2) "substantially level amortization of such
9
The parties stipulated that, at all relevant times, one-half
of the present value of petitioner's "accrued benefit" exceeded
$100,000. We, however, conclude that the stipulation is not
helpful as sec. 72(p)(2)(A)(2) takes into account only the
participant's nonforfeitable accrued benefit. We note that, in
any case, the sec. 72(p)(2)(A) exception is limited to loans
(when added to the outstanding balance of all other loans from
the plan) that do not exceed $50,000. The lesser of (1) $50,000
or (2) the greater of the two specified amounts, sec.
72(p)(2)(A), is an amount equal to $50,000 or less. Accordingly,
loans that exceed $50,000 do not qualify for the sec. 72(p)(2)(A)
exception.
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loan (with payments not less frequently than quarterly) is
required over the term of the loan", sec. 72(p)(2)(C). The
requirement of section 72(p)(2)(C) applies to loans made,
renewed, renegotiated, modified, or extended after December 31,
1986. Tax Reform Act of 1986, Pub. L. 99-514, sec. 1134(b), 100
Stat. 2085, 2484.
Respondent, citing petitioners' concession that the renewed
loan does not provide for "level amortization", argues that the
renewed loan does not qualify for the section 72(p)(2)(A)
exception because it does not meet the section 72(p)(2)(C)
requirement of "level amortization". Consequently, respondent
contends that the renewed loan is a taxable distribution to
petitioners pursuant to section 72(p)(1)(A). Petitioners,
however, merely argue that "There is not enough in the record to
cause the $50,000 loan to constitute taxable income to the
petitioners under Section 72(p)."
Contrary to respondent's argument, section 72(p)(2)(C)
provides that the exception pursuant to section 72(p)(2)(A) does
not apply unless the loan requires substantially level
amortization. The phrase "substantially level amortization" is
less stringent than the phrase "level amortization". Although
petitioners conceded that the renewed loan did not provide for
"level amortization", respondent must still establish that the
renewed loan did not have "substantially level amortization" in
order to prevent the application of the exception contained in
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section 72(p)(2)(A). Nonetheless, we conclude that, even if
respondent has not established that the renewed loan did not have
substantially level amortization, the renewed loan is a taxable
distribution to petitioners pursuant to section 72(p)(1)(A)
because the record establishes that the renewed loan exceeded
$50,000. At trial, the parties orally stipulated that, when the
original loan was due in 1988, the principal amount due; i.e.,
$50,000, and interest due thereon were not paid but instead were
rolled over into the renewed loan. Accordingly, as the amount of
the renewed loan was the sum of $50,000 plus the interest that
had accrued on the original loan, the amount of the renewed loan
necessarily exceeded $50,000. Consequently, we conclude that the
renewed loan does not meet the requirement of section
72(p)(2)(A), and we hold that the renewed loan is a taxable
distribution to petitioners pursuant to section 72(p)(1)(A) for
their 1988 taxable year.10
Lastly, we turn to the additions to tax determined by
respondent. In the notices of deficiency, respondent determined
that petitioners and the corporation are liable for additions to
tax pursuant to sections 6651, 6653, and 6661. Petitioners and
10
To the extent that a net operating loss results from the
parties' stipulations, the allowance of the Yorkville interest
expense deduction, and the inclusion of the renewed loan from the
pension plan in petitioners' gross income, petitioners shall be
entitled to a loss carryback from their 1988 taxable year to
their 1987 taxable year, which the parties must calculate in the
Rule 155 computations that we order below.
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the corporation bear the burden of proving that respondent's
determinations of additions to tax are erroneous. Rule 142(a).
Neither petitioners nor the corporation objected to
respondent's requested ultimate findings of fact that the
underpayments of tax by petitioners and by the corporation "were
due to negligence and/or intentional disregard of rules and
regulations." Additionally, they make no argument on brief
concerning the additions to tax pursuant to section 6653.
Accordingly, we consider petitioners and the corporation to have
conceded the additions to tax pursuant to section 6653.
Petitioners and the corporation argue that, to the extent
that the threshold requirements of section 6661 are not met, the
section 6661 addition to tax does not apply. Neither petitioners
nor the corporation makes any argument concerning the additions
to tax pursuant to section 6651. Consequently, we consider the
additions to tax pursuant to sections 6651 and 6661 (to the
extent that the threshold requirements are met) to have been
conceded. Rybak v. Commissioner, 91 T.C. 524, 566 (1988).
Accordingly, we sustain respondent's determination of additions
to tax for petitioners and the corporation.
To reflect the foregoing,
Decisions will be entered
under Rule 155.
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APPENDIX
Taxable Year Ending June 30, 1986
Amount of Purpose of
deduction claimed deduction claimed
by the corporation by the corporation Concessions and Arguments
$17,695 other deduction The corporation conceded
entire amount to be the cost
of acquiring paintings and not
a deductible business expense
to the corporation; respondent
allowed additional
depreciation expenses.
5,497 other deduction The corporation conceded
entire amount to be
petitioner's personal real
estate expense and contends
that entire amount is
deductible as compensation to
petitioner.
1,728 other deduction The corporation conceded
entire amount to be
petitioner's personal
educational expense and
contends that entire amount is
deductible as compensation to
petitioner.
8,775 other deduction The corporation conceded
4387.00 [sic] to be not
deductible for the purpose
claimed and contends that such
amount is deductible as
compensation to petitioner;
respondent conceded 4387.50.
4,500 legal and The corporation conceded 1,000
professional fees to be not deductible for the
purpose claimed and contends
that such amount is deductible
as compensation to petitioner;
respondent conceded 3,500.
894 repairs/supplies The corporation conceded 594
to be not deductible for the
purpose claimed and contends
that such amount is deductible
as compensation to petitioner;
respondent conceded 300.
600 professional The corporation conceded 600
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education expenses to be petitioner's personal
business expense and contends
that such amount is deductible
as compensation to petitioner.
800 consulting fees The corporation conceded 400
to be petitioner's personal
business expense and contends
that such amount is deductible
as compensation to petitioner;
respondent conceded 400.
Taxable Year Ending June 30, 1987
Amount of Purpose of
deduction claimed deduction claimed
by the corporation by the corporation Concessions and Arguments
$22,622 other deduction The corporation conceded
entire amount to be
petitioner's personal real
estate expense and contends
that entire amount is
deductible as compensation to
petitioner.
38,979 other deduction The corporation conceded
19,489 to be not deductible
for the purpose claimed and
contends that such amount is
deductible as compensation to
petitioner; respondent
conceded 19,489. [1-dollar
mathematical error by the
parties]
823 real estate taxes Respondent conceded entire
amount.
3,500 legal and The corporation conceded
professional fees entire amount to be
petitioner's personal expense
and contends that entire
amount is deductible as
compensation to petitioner.
4,600 consulting fees The corporation conceded 1,400
to be petitioner's personal
expense and contends that such
amount is compensation to
petitioner; respondent
conceded 3,200.
5,000 furniture and The corporation conceded
fixtures entire amount to be not
deductible; respondent allowed
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additional ACRS deductions
pursuant to section 168.
Taxable Year Ending December 31, 1987
Amount of Purpose of
deduction claimed deduction claimed
by the corporation by the corporation Concessions and Arguments
$8,075 other deduction The corporation conceded
entire amount to be
petitioner's personal real
estate expense and contends
that all is deductible as
compensation to petitioner.
8,078 other deduction The corporation conceded 4,039
to be not deductible for the
purpose claimed and contends
that such amount is deductible
as compensation to petitioner;
respondent conceded 4,039.50
[sic].
9,098 real estate taxes The corporation conceded 3,359
to be petitioner's personal
real estate taxes and contends
that such amount is deductible
as compensation to petitioner;
respondent conceded 5,739.
Taxable Year Ending December 31, 1988
Amount of Purpose of
deduction claimed deduction claimed
by the corporation by the corporation Concessions and Arguments
$3,292 other deduction The corporation conceded
entire amount to be
petitioner's personal real
estate expense and contends
that all is deductible as
compensation to petitioner.
8,512.93 other deduction The corporation conceded
entire amount to be the cost
of acquiring paintings;
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respondent allowed additional
depreciation expenses.
68,713.07 other deduction The corporation conceded
50,361 to be not deductible
for the purpose claimed and
contends that such amount is
deductible as compensation to
petitioner; respondent
conceded 18,352.
9,961 legal and The corporation conceded
professional fees 6,161.35 to be an amount that
was wire transferred to
petitioner and 3,800 to be
petitioner's personal business
and investment expense. The
corporation contends that
entire amount is deductible as
compensation to petitioner.
5,064 repairs/supplies The corporation conceded
entire amount to be payments
by the corporation to Western
Savings Credit Union and
contends that entire amount is
deductible as compensation to
petitioner.
1,861 insurance The corporation conceded
entire amount to be
petitioner's personal real
estate insurance expense and
contends that entire amount is
deductible as compensation to
petitioner.