Stephen D. Podd - Page 4

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               Unless otherwise indicated, all section references are to the          
          Internal Revenue Code in effect for the years in issue, and all Rule        
          references are to the Tax Court Rules of Practice and Procedure.            
                                  STATEMENT OF ISSUES                                 
               After concessions,3 the issues remaining for decision are:             
               1.  Whether petitioner Powertex, Inc., is entitled to deduct           
          certain royalty payments paid to certain individual petitioners, or         
          whether an adjustment under section 162 or section 482 is warranted;        
               2.  whether consulting fees paid by Powertex, Inc., to Special         
          Commodities Services, Inc., are ordinary and necessary business             
          expenses deductible under section 162;                                      
               3.  whether amounts deducted by Powertex, Inc., as management          
          fees paid to Powertex Plus International, Inc., are reasonable              
          payments for services rendered;                                             
               4.  whether the individual petitioners received constructive           

          appropriate royalty rate pursuant to sec. 482 should be 0                   
          percent.  Correspondingly, respondent amended his answers to                
          increase the constructive dividends asserted against several of             
          the individual petitioners.                                                 
               Respondent bears the burden of proof with respect to the               
          increased deficiencies, additions to tax, and penalties pleaded             
          in the amended answers.  Rule 142(a).  In light of our holdings             
          with regard to the issues raised in the amended answers, however,           
          the location of the burden of proof is immaterial.                          
          3    Petitioners conceded several issues in the stipulations of             
          facts.  Additionally, to the extent they did not address other              
          issues on brief, we consider such issues to have been conceded.             
          Rybak v. Commissioner, 91 T.C. 524, 566 n.19 (1988).                        

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