Estate of William T. Rogers - Page 3

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               The issues we must decide in the instant case are:2  (1)               
          Whether Mr. Rogers received an interest in certain property                 
          during 1991 as compensation from Alpha Hospital Management, Inc.            
          (Alpha Hospital), an S corporation in which Mr. Rogers was a                
          shareholder; (2) the value, if any, of such interest; and (3)               
          whether petitioners are liable for a penalty pursuant to section            
          6662(a) for substantial understatement of tax.                              

          2    Respondent's notice of deficiency determined a deficiency in           
          the Rogerses' 1991 Federal income tax in the amount of $3,506,517           
          and a penalty pursuant to sec. 6662 in the amount of $701,303.              
          In calculating the deficiency, respondent redetermined                      
          petitioner's income with respect to Alpha Medical, Inc. (Alpha              
          Medical), a subchapter S corporation of which Mr. Rogers was the            
          sole shareholder.  Respondent determined that $8,622,642 reported           
          by both Alpha Medical and Mr. Rogers as compensation to Mr.                 
          Rogers was excessive.  Accordingly, respondent denied Alpha                 
          Medical's deduction for compensation to the extent of $8,122,015            
          and decreased Mr. Rogers' income from compensation to $500,627.             
          Respondent further denied Alpha Medical deductions for other                
          expenses in the amount of $1,507,344.  Accordingly, respondent              
          increased Mr. Rogers' proportionate share of subchapter S income            
          from Alpha Medical from a loss in the amount of $363,243 to                 
          income in the amount of $9,266,116.  Respondent has conceded by             
          stipulation that Mr. Rogers' distributive share of income from              
          Alpha Medical is in fact a loss in the amount of $363,243.                  
               Respondent also determined in the notice of deficiency that            
          Mr. Rogers was not entitled to report under the installment                 
          method $9,804,000 from the sale of contract rights regarding                
          certain property.  See infra note 5.  Subsequently, respondent              
          amended the answer in the instant case to allege that, during               
          1991, Mr. Rogers received a compensatory interest in certain                
          properties as payment for his services in arranging a transaction           
          between American Medical Holdings, Inc. and Vista Hospital                  
          Systems, Inc.  By stipulation, respondent conceded the adjustment           
          in the notice of deficiency in the amount of $9,804,000 with                
          respect to the installment sale.  Respondent's position is that             
          the value of the compensatory interest received by Mr. Rogers               
          during 1991 was $10,320,000.                                                

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