4
We hold that: (1) Corporate petitioners' motion to shift
the burden of proof is denied as moot; (2) the disputed amounts
allegedly paid for rent are not deductible; (3) the disputed
amounts paid to Mr. Munro as compensation are deductible by
Pertinax only to the extent stated below; (4) the disputed
amounts allegedly paid by Alondra and Edco to Pertinax as
management fees are not deductible; (5) the disputed amounts paid
by Alondra and Edco to Pertinax for wages of its employees are
deductible to the extent stated below; (6) the unreasonable
compensation routed to Mr. Munro by Alondra and Edco through
Pertinax should be treated as unreasonable compensation directly
provided to Mr. Munro by Alondra and Edco; and (7) the additions
to tax for negligence and for substantial understatement are both
sustained to the extent stated below.
FINDINGS OF FACT
The stipulations of fact, the supplemental stipulations of
fact, and the exhibits attached thereto are incorporated in our
findings by this reference. Unless we state otherwise, these
findings concern facts occurring during the relevant taxable
period.
Parties and Affiliates
Alondra is a California corporation. Alondra keeps its
books and reports its income using the accrual method of
accounting on a fiscal year ending June 30. J.B. Ross, a.k.a. Jo
Anne Munro (Ms. Ross), is Alondra's sole shareholder and
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