- 8 -
respondent knew that Michael Bockrath (Bockrath) and Joseph
Caizzo (Caizzo) were petitioner's sole shareholders who, as
employees, did not deal at arm's length with petitioner to set
their compensation; petitioner paid compensation to the
shareholders in proportion to their stockholding; and petitioner
did not have records adopting the compensation formula upon which
petitioner relied. Respondent knew that Bockrath and Caizzo
spent time helping another company called CABO, Inc.; that
petitioner had fewer than 30 employees; and that petitioner's
business was limited to resurfacing roads. Respondent also knew
that petitioner paid Bockrath and Caizzo $689,600 in 1989 and
$817,500 in 1990, and that petitioner did not claim that it made
catchup payments for service in prior years. Respondent also
considered data from RMA that was admitted into evidence.
Although we found petitioner's evidence in the underlying
case to be more convincing than respondent's, we believe that
respondent's position had a reasonable basis in fact.
In the notice of deficiency, respondent determined that the
amounts petitioner deducted as compensation for its officers in
the years in issue were unreasonable. Petitioner points out
that respondent did not explain at trial how respondent
calculated the amount of reasonable compensation stated in the
notice of deficiency. Petitioner's argument misses the mark.
The point is not whether respondent gave the basis for the
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011