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The issues for decision are: (1) Whether an amount paid by
petitioner to William T. Rogers (Rogers) as compensation during
taxable year 1990 is reasonable within the meaning of section
162(a)(1). We find the amount paid was not reasonable to the
extent set out below. (2) Whether petitioner is liable for the
accuracy-related penalty under section 6662(d) for substantially
understating its income for the year in issue.2 We find it is.
2 In its petition to this Court, petitioner raised the
issue of whether a second inspection of petitioner's records,
within the meaning of sec. 7605(b), was conducted by respondent's
agent for the 1990 taxable year.
On Jan. 5, 1993, petitioner received a notice of audit for
1990. Upon receipt of the notice of audit for 1990, petitioner
objected to the audit on the basis that the audit was repetitive
and that the Internal Revenue Service (IRS) already had in its
possession information relating to 1990.
Revenue Agent Arthur W. Horton caused a summons to be issued
for information relating to 1990. By letter dated Nov. 18, 1993,
petitioner informed the IRS that petitioner was not going to
produce the records.
A summons enforcement proceeding was initiated in the U.S.
District Court for the Eastern District of Tennessee on June 20,
1994, and a hearing was held on Aug. 29, 1994. Petitioner's
representative appeared at the hearing and objected to the
summons on the ground, inter alia, that the IRS's request to
examine its books of account for 1990 was a second inspection in
violation of sec. 7605(b). The District Court ruled in favor of
the IRS, and petitioner appealed to the Court of Appeals for the
Sixth Circuit.
In United States v. Alpha Med. Management, Inc., 116 F.3d
1481 (6th Cir. 1997), the Court of Appeals for the Sixth Circuit
by an unpublished opinion remanded the case to the District Court
for a determination of which documents sought by the summons were
already in the possession of or accessible to the IRS. In other
respects the District Court's order enforcing the summons was
affirmed. In its ruling, the Court of Appeals found that the IRS
complied with the statutory requirements of sec. 7605(b).
We conclude that there was no second inspection of
petitioner's books of account in violation of sec. 7605(b).
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