- 5 -
also attended, was held for the purpose of ensuring review of all
relevant documents and consideration of all relevant facts in a
final effort to settle the bonus issue. For reasons that are not
evident from the record, petitioner’s representatives continued
to dispute the proposed disallowance of the bonus deduction for
FYE 5/31/90. In November 1993 the case was closed to Appeals.
At no time during the 8- to 9-month examination did petitioner’s
representatives inform the Internal Revenue Service that
petitioner had issued Mr. Petar a note evidencing the bonus award
during FYE 5/31/90. No corporate documents examined by the
Internal Revenue Service revealed the existence of such a note.
Although the revenue agent specifically requested petitioner’s
corporate minute book, it was never shown to him.
In the petition, filed on November 23, 1994, petitioner set
forth its objection to respondent’s determination as follows:
We disagree with the salary bonus of $100,000.00
accrued on our books [for] FYE 5-31-90 being
disallowed.
* * * * * * *
because we took all necessary steps to make the
deduction proper as follows:
1- Took Promissory Note between Frank Petar Contracting
Inc. & Frank Petar on 5-23-1990.
2- Reflected income on Frank Petar Form 1040 for 1990.
3- Performed services by Frank Petar for this
remuneration during FYE 5-23-90.
OPINION
Section 267(a)(2) limits the deductibility of a business
expense payable to a related person if the amount is not
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