Leonard Pipeline Contractors, Ltd. - Page 2

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          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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