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fee deduction for that year). The notice of deficiency also
disallowed petitioners’ flow-through deductions of $8,249 in travel
expenses and $7,379 in automobile expenses.4
OPINION
First, we must deal with petitioners’ limitations argument.
Petitioners assert that the notice of deficiency is invalid because
respondent failed to secure an extension of time from petitioners’
S corporation (HPD-Latigo) for 1989.
When deficiencies result pursuant to a taxpayer’s status as a
shareholder in an S corporation, it is the taxpayer’s return, not
that of the S corporation, that is determinative for section
6501(c)(4) purposes. See Bufferd v. Commissioner, 506 U.S. 523, 533
(1993). Petitioners and respondent entered into an agreement (Form
872-A) to extend the time to assess petitioners’ 1989 taxes. The
notice of deficiency was issued prior to a termination of that
agreement. Accordingly, we reject petitioners’ limitations
argument.
Issue 1. Profit Participation Fee
We now turn our attention to the propriety of the $300,000
profit participation fee deduction claimed by HPD-Latigo.
Respondent disallowed this deduction on the basis that petitioners
failed to establish “that the amount [was] incurred or, if incurred,
4 On HPD-Latigo’s 1989 return, $19,073 was listed as
travel. The $19,073 comprised $8,249 in travel expenses, $7,379
in automobile expenses, and $3,445 for services rendered by an
accounting firm. Respondent allowed the $3,445 for accounting
services.
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