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notice contains one or more negative adjustments (depending on
the number of years in issue) for “management cost share
expenses”. Those adjustments are explained in substantially
similar language, as follows:
[I]t is determined the management fee was paid under an
agreement which is not at arm’s length. Therefore,
this expense is reallocated among the controlled
corporations under section 482 of the Internal Revenue
Code. This action is necessary to clearly reflect the
true taxable income of each controlled corporation and
to prevent income manipulation. * * *
Respondent called as a witness Diane Camper, a revenue agent for
the Internal Revenue Service. Ms. Camper is responsible for
calculating the adjustments respecting management cost share
expenses set forth in the notices of deficiency. Ms. Camper was
questioned on cross-examination about the methodology she used to
make those adjustments. She testified that she made those
allocations based on the gross sales of the purchasing
corporations, making some adjustments with respect to time spent
with respect to certain of the purchasing corporations that were
merely real estate holding companies.
At trial, respondent called as an expert witness Sharon
Moore. Ms. Moore is a certified public accountant and a senior
appraiser accredited by the American Society of Appraisers. She
is affiliated with Alpha Consulting Alliance (Alpha) and, along
with others affiliated with Alpha, prepared a report that was
offered as her expert testimony (the report). The report was
prepared in response to respondent’s request that Alpha opine as
to whether BKK's management cost fee allocation represented an
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Last modified: May 25, 2011