Leonard Pipeline Contractors, Ltd. - Page 2

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          Contractors, Ltd. v. Commissioner, 142 F.3d 1133 (9th Cir. 1998),           
          revg. and remanding T.C. Memo. 1996-316.                                    
               The issue for decision concerns the reasonableness of the              
          amount of compensation paid by petitioner to its president, Richard         
          L. Leonard, in 1987.  We previously determined in Leonard Pipeline          
          Contractors, Ltd. v. Commissioner, T.C. Memo. 1996-316 (Leonard             
          Pipeline I), that of the $1,777,800 petitioner paid Mr. Leonard in          
          1987, only $700,000 was reasonable and thus deductible as a section         
          162 business expense.1  The Court of Appeals has directed us to             
          explain how we arrived at our conclusion that $700,000 represented          
          a reasonable amount of compensation.  The Court of Appeals has              
          further directed us to consider that the burden of proof is on              
          petitioner, and to                                                          
                    determine what, if any, factors, have been                        
                    demonstrated so as to require a setting aside                     
                    of the Commissioner's determination, the                          
                    recognition of a right to increased                               
                    compensation, and the establishment of an                         
                    amount   qualifying  as   reasonable   under                      
                    � 162(a)(1).                                                      
          142 F.3d at 1136.                                                           
                                  FINDINGS OF FACT                                    
               The findings of fact are set forth in Leonard Pipeline I and           
          are incorporated herein by this reference.  For convenience, we             
          shall repeat those facts as necessary to clarify the ensuing                


               1    All section references are to the Internal Revenue Code           
          in effect for the year in issue, and all Rule references are to             
          the Tax Court Rules of Practice and Procedure.                              




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