- 30 -
Estate of Reinke v. Commissioner, 46 F.3d at 765. In this case,
the record contains no indication that petitioner specifically
requested that respondent waive the addition prior to trial.
Even if it had requested a waiver, petitioner did not prove
reasonable cause existed for its compensation deduction.
Petitioner asserts that it reasonably relied on the no-change
result from an audit regarding Kleindienst's compensation for
taxable year 1987 in determining Kleindienst's compensation for
taxable year 1989. In taxable year ended July 31, 1987,
Kleindienst earned $364,755. In a letter to the Internal
Revenue Service (IRS) in response to the audit, West justified
Kleindienst's compensation as a percentage of petitioner's gross
receipts. During taxable years 1985-87, the percentage ranged
from 34 percent to 44 percent. West stated that she believed
that the no-change result of the audit meant that the IRS
approved of compensation to Kleindienst as a percentage of gross
receipts within this range.
The no-change result of a prior audit does not mean that
respondent approved the manner in which petitioner determined
Kleindienst's compensation or that her compensation in taxable
year 1987 was reasonable. Owensby & Kritikos, Inc. v.
Commissioner, 819 F.2d at 1329. In Owensby, the court held that
the prior audit result is not decisive in determining the
reasonableness of compensation for a subsequent year. However,
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011