-2-
percent of the interest on $807,983. The deficiency is based on
respondent's determination that $1,642,593 of the $1,777,800
petitioner deducted as compensation paid to its president, Richard
L. Leonard, was unreasonable.
Following respondent’s concession of the additions to tax, the
sole issue for decision is the amount of compensation paid by
petitioner that is reasonable and thus deductible as a section 162
business expense.
All section references are to the Internal Revenue Code in
effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure. Except where indicated
by the notation Can$ (standing for Canadian), all dollars are U.S.
dollars.
FINDINGS OF FACT
Some of the facts have been stipulated and are found
accordingly. The stipulation of facts and the attached exhibits
are incorporated herein by this reference.
At the time petitioner Leonard Pipeline Contractors, Ltd.
filed its petition herein, its principal place of business was in
Scottsdale, Arizona. Petitioner filed its 1987 Federal income tax
return based on a fiscal year ending September 30, 1987.
Petitioner's History
Petitioner was incorporated in Canada on September 28, 1977.
From its incorporation through the year in issue, petitioner
engaged in pipeline construction and related activities, either
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