Pediatric Surgical Associates, P.C. - Page 1

                                 T.C. Memo. 2001-81                                   

                               UNITED STATES TAX COURT                                

                 PEDIATRIC SURGICAL ASSOCIATES, P.C., Petitioner v.                   
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 12743-98.                    Filed April 2, 2001.           

                    P is a personal service corporation in the                        
               business of providing pediatric surgical services.  It                 
               employs both shareholder surgeons and nonshareholder                   
               surgeons to perform such services.  For the years in                   
               issue, the shareholder surgeons received a fixed                       
               monthly salary plus monthly bonuses consisting of                      
               available cash less amounts needed to pay P’s near-term                
               expenses.  The nonshareholder surgeons received only a                 
               fixed monthly salary.  P deducted the amounts paid to                  
               the shareholder surgeons as “officers compensation”.                   
                    R disallowed a portion of such deductions on the                  
               ground that a portion of the amounts paid to the                       
               shareholder surgeons was a dividend rather than                        
               officers’ compensation.  R also determined that P was                  
               subject to a sec. 6662, I.R.C., accuracy-related                       
               penalty for each of the years in question.  Ultimately,                
               R sharply reduced his proposed deficiencies to amounts                 
               determined to represent P’s profits attributable to                    
               services rendered by the nonshareholder surgeons.  P                   

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