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Ms. Hamilton was told by Mr. Borawski that, in his opinion,
the industry average for this type of commission [gross profit
spread] was 5 percent. Ms. Hamilton knew of Mr. Borawski's 20
years of experience in the industry. Ms. Hamilton considered Mr.
Borawski's opinion, but did not adopt it in forming her
conclusion.
E. Deficiency Notice
The notice of deficiency was mailed to petitioner on
December 21, 1994. The notice of deficiency states:
As required by Section 6038A(e)(1) of the Internal
Revenue Code and Section 1.6038A-5 of the Income Tax
Regulations, the foreign related party, ASAT, Ltd.,
with which you have engaged in transactions, has failed
to provide the Internal Revenue Service an
authorization of agent within 30 days of the request by
letter from the Internal Revenue Service dated November
25, 1992. See Section 1.6038A-5(b) of the Income Tax
Regulations. * * *
Therefore, the noncompliance penalty adjustment under
Section 6038A(e)(3) has been imposed; accordingly, your
cost of goods sold [consulting fees expense, net
operating loss deduction] has been determined based on
information available to the Internal Revenue Service.
* * *
Consulting Fees
In 1990, Mr. Li contacted a friend, Mr. Chapple, president
and 50-percent shareholder of Worltek, and thereafter hired
Worltek to perform an evaluation or review of petitioner. During
1990 and 1991, two employees of Worltek, Mr. Combs and Mr. Smith,
performed services that were billed to petitioner. Mr. Combs
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