3
The issues for decision are (1) whether the burden of proof
should be shifted from corporate petitioners to respondent with
respect to the issues of substantiation of claimed expenses for
rent and management fees; (2) whether disputed amounts of
$26,881, $3,721, and $3,136 allegedly paid respectively by
Alondra, Edco, and Pertinax to Joel Munro (Mr. Munro) for rent
are deductible by petitioners as ordinary and necessary business
expenses; (3) whether and to what extent $1,000,112 paid to Mr.
Munro is deductible by Pertinax as reasonable compensation; (4)
whether disputed amounts of $906,879 and $9,922 allegedly paid
respectively by Alondra and Edco to Pertinax as management fees
are deductible by Alondra and Edco as reasonable compensation;
(5) whether disputed amounts of $884,148 and $35,671 paid
respectively by Alondra and Edco to Pertinax for wages paid to
employees of Pertinax, some of whom also served as officers of
Alondra and Edco, are deductible by Alondra and Edco as ordinary
and necessary business expenses; (6) the proper tax treatment of
unreasonable compensation routed to Mr. Munro by Alondra and Edco
through Pertinax; and (7) whether Alondra and Edco are liable for
additions to tax for negligence under section 6653(a)(1)(A) and
(B)2 and Alondra is liable to the addition to tax for substantial
understatement under section 6661(a).
2Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years at issue. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
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Last modified: May 25, 2011