- 65 -
For the period January 1 through June 30, 1984, Machise
accrued and deducted, for Federal income tax purposes, "rents",
of $2,425,881. For the period July 1 through December 31, 1984,
Machise/Intercoastal accrued, and deducted for Federal income tax
purposes, rents of $2,556,722.
Respondent issued a statutory notice of deficiency to
Intercoastal disallowing Intercoastal's claimed deduction for its
fiscal year ended June 30, 1984 and 1985, of those parts of its
"rents" expense paid to MIT 84 that represent 20 percent of the
compensation fee under the employee leasing agreement, the
management fee expense, and the interest expense.
MIT 84 closed its bank accounts early in 1985. All its
subsequent years’ financial operations were effected through non-
cash transactions, made by issuing, endorsing, or canceling non-
interest-bearing notes, and recorded only by journal entries.
These included Machise's payments, in 1985 and 1986, of $546,300,
in the form of demand notes, as deferred compensation fee plus
interest (the 10-percent late charge). In 1987, MPC made the
payment of this amount; it was recorded only by journal entries.
These payments took the form of endorsements to the Machise
notes; after July 1, 1986, they existed only as bookkeeping
entries. They were recorded as passing through MIT 84, coming in
as compensation fee income and exiting as capital distributions
to its partners, going from them as payments on their notes to
Page: Previous 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 NextLast modified: May 25, 2011