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these amounts were payments on Burke’s $100,000 bonus, which INI
had accrued in TYE 9/84. As payments were received by the
estate, Thorpe made no distinction between payments the estate
received from INI and payments received from petitioner
personally; Thorpe accepted and treated all moneys received from
petitioner and INI as part payment for the stock.
The Internal Revenue Audit
Between August 1985 and August 1986, INI's TYE 9/84 return
was audited by Revenue Agent Douglas Becker (Becker). Petitioner
authorized Cutshall to represent INI before the Internal Revenue
Service (IRS). During the audit, Becker questioned the
deductibility of the accrued bonus to Burke.
Cutshall refused to allow Becker to interview petitioner
during the initial audit interview, but they did meet later.
Petitioner told Becker that INI had paid $50,000 to Burke’s
estate as payment on a note for an accrued bonus. Petitioner
told Becker that INI's liability to pay a bonus to Burke accrued
on the date of Burke's death because both the fact and the amount
of the liability were fixed, absolute, and irrevocable at that
time. In support of the deduction, Cutshall and petitioner
showed Becker minutes from INI’s board of directors meeting dated
May 16, 1984, and a canceled check for $50,000 dated December 13,
1984.
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