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the management fees accruing to petitioner pursuant to the
compensation arrangement.
During February 1984, Mr. White instructed Mr. Davis to
prepare an invoice for the fees earned by petitioner and White
Enterprises from June 1983 through February 1984 and thereafter
to prepare invoices for these fees and to record the fees in the
partnership’s books and records on a monthly basis. From
February 1984 through December 1986, Mr. Davis prepared an
invoice each month for the fees owed to petitioner and White
Enterprises. The fees earned by petitioner were recorded in the
partnership’s books and records as amounts payable and as
management fees added to the cost of goods sold. The management
fees that accrued to petitioner were capitalized into inventory
each year by Mr. Davis and expensed as the inventory was sold.
The partnership’s records reflect the following management
fees that accrued to petitioner at the rate of $5,000 per month
pursuant to the compensation arrangement:
Year Amount
1983 $35,000
1984 60,000
1985 60,000
1986 60,000
From June through December 1983, the partnership accrued
$5,000 per month to White Enterprises. From January 1984 through
December 1986, the partnership accrued or paid between $9,000 to
$10,000 per month in construction and other fees to White
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Last modified: May 25, 2011