Leonard Pipeline Contractors, Ltd. - Page 3

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          discussion.  The stipulation and exhibits are also incorporated             
          herein by this reference.                                                   
               Leonard Pipeline Contractors, Ltd., petitioned this Court              
          contesting respondent’s determination of an $807,983 deficiency in          
          its Federal income tax for its taxable year ended September 30,             
          1987, and additions to tax pursuant to section 6653(a)(1)(A) in the         
          amount of $40,399 and section 6653(a)(1)(B) in the amount of 50             
          percent of the interest on $807,983.  The deficiency was based on           
          respondent's determination that $1,642,593 of the $1,777,800                
          petitioner deducted as compensation paid to Richard L. Leonard was          
          unreasonable.  Respondent subsequently conceded the additions to            
          tax.                                                                        
               At the time petitioner Leonard Pipeline Contractors, Ltd.,             
          filed its petition herein, its principal place of business was in           
          Scottsdale, Arizona.  Petitioner filed the relevant Federal income          
          tax return based on a fiscal year ended September 30, 1987. (All            
          references hereinafter to petitioner's relevant years refer to              
          petitioner's fiscal years ended September 30.)                              
               Richard L. Leonard had extensive experience in the pipeline            
          industry, dating from the 1950's.  In 1977, he caused petitioner to         
          be established in Canada and became its president and chief                 
          financial  and  operating  officer.  At  all  relevant  times,              
          petitioner's stock was wholly owned by R.L. Leonard Holdings, Ltd.          
          (RLLH), whose stock in turn was wholly owned by Mr. Leonard.                
          Petitioner became a U.S. corporation on April 18, 1985.                     




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