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times, the partnership used the calendar year as its tax year and
maintained its books and records and filed its Forms 1065, “U.S.
Partnership Return of Income,” under the accrual method of
accounting.
Petitioner and Mr. White performed certain services prior to
1984 in order to determine whether it would be advantageous to
pursue the partnership venture. In late 1983 or early 1984,
petitioner and Mr. White orally agreed that the partnership would
pay petitioner $5,000 per month (management fees) as compensation
for providing various management services to the partnership
(compensation arrangement). Petitioner and Mr. White settled on
that amount because petitioner estimated his time was worth that
based on what he had earned performing services on behalf of
Palmer & Sicard, Inc., a plumbing and heating corporation which
he had partly owned. The amount of the management fee was
unaffected by the amount of partnership income. Petitioner and
Mr. White also agreed to accrue to petitioner $5,000 per month
for management services performed during the last seven months of
1983.
Petitioner and Mr. White also orally agreed that the
partnership would pay White Enterprises, a corporation wholly
owned by Mr. White, for various services it was to provide to the
partnership, including architectural, construction, bookkeeping,
and accounting services.
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Last modified: May 25, 2011