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the following fiscal year--July 1 to December 31, 1982--
Machise/Intercoastal accrued, and deducted as rents, another
$1,490,645. For the combined 12-month period, these amounts
totaled $2,880,595, or 115 percent of the payroll costs allegedly
paid by MIT 82.
Respondent issued a statutory notice of deficiency to
Intercoastal disallowing Intercoastal's claimed deduction, for
the fiscal years ended June 30, 1982 and 1983, of those parts of
its "rents" expense that represent 15 percent of the compensation
fee under the employee leasing agreement, for the management fee
expense, and for the interest expense.
Post-1982 Transactions of MIT 82
On July 1, 1983, some 6 months after MIT 82's obligation to
provide Machise with employees and independent contractors had
ended, MIT 82 billed Machise for 115 percent of the payroll
costs, as the compensation fee pursuant to the employee leasing
agreement. Under the employee leasing agreement, Machise was not
required to pay this amount until July 1, 1993, if it paid the
10-percent annual late charges.
MIT 82 closed its bank accounts in 1983. The journal
entries for 1983 indicate that Machise issued to MIT 82 a check
for $473,458, which was circled from MIT 82 through the partners
and back to Machise, without being deposited. However, no copy
of any such check appears in the record. All of MIT 82’s
subsequent years’ financial operations were effected through
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