Compact Equipment Company - Page 9

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          1985 and 1986, which relate to petitioner’s taxable years ending            
          March 31, 1985 and 1986, respectively, show that petitioner’s               
          board of directors provided Atkinson with a salary and bonuses.             
          The minutes do not provide any other form of compensation for               
          Atkinson.  Petitioner’s board of directors never authorized any             
          additional compensation for Atkinson in the form of payments by             
          petitioner for the construction expenses.                                   
          Petitioner’s Treatment of the Construction Expenses on Its Books            
          and Corporate Tax Returns                                                   
               To prepare each of petitioner’s corporate tax returns,                 
          Dunkin’s staff visited petitioner’s place of business, retrieved            
          all pertinent information from its books and records, and                   
          identified questions and issues that needed further addressing.             
          Dunkin’s staff, however, did not inspect, review, or audit                  
          petitioner’s books.  Dunkin then met with Atkinson and the                  
          controller to inform them of his preliminary findings and to seek           
          answers to the questions and issues raised by his staff and                 
          himself.  Based on the answers and information provided by                  
          Atkinson and petitioner’s employees, Dunkin’s staff prepared                
          petitioner’s corporate tax return.  After Dunkin reviewed the               
          corporate tax return, he sent it to Atkinson for his approval and           
               The total cost of the construction of the Carnelian Bay                
          residence and the improvements to the Carnelian Bay property                
          amounted to more than $1 million.  Of that amount, petitioner               

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Last modified: May 25, 2011