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After concessions, the issues for decision are:
1. Whether petitioner may deduct as compensation for Kirk
Eberl $4,340,000 for fiscal year 1992 and $2,080,000 for fiscal
year 1993, as petitioner contends; $500,000 for fiscal year 1992
and $400,000 for fiscal year 1993, as respondent contends; or
some other amount. We hold that petitioner may deduct $2,340,000
for fiscal year 1992 and $1,080,000 for fiscal year 1993.
2. Whether petitioner is liable for the accuracy-related
penalty for substantial understatement under section 6662 for
fiscal years 1992 and 1993. We hold that it is not.
Section references are to the Internal Revenue Code in
effect during the years at issue. Rule references are to the Tax
Court Rules of Practice and Procedure.
I. FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
Petitioner is a Colorado corporation that had its mailing
address in Lakewood, Colorado, when it filed the petition.
A. Kirk Eberl
1. General
Kirk J. Eberl (Eberl) is petitioner's founder, sole
shareholder, and president. Grace and Kirk Eberl have been
married since 1975.
Eberl's father, Gene Eberl, was a catastrophic claims
adjuster. Catastrophic claims adjusting is the process of
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