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have hospital privileges, in Tarrant County, Texas, he must pay
petitioner $5,000 a month until 96 months have passed.
Cash Bonuses
In the middle of each month, petitioner would determine the
amount remaining in its bank account and the amount of cash
necessary to meet anticipated cash-flow needs for the immediate
and near future. The balance in the account, if any, was paid
out, in equal amounts, as bonuses to the shareholder surgeons,
pursuant to the shareholder employment agreements.
Audit Year Compensation of Shareholder Surgeons
On petitioner’s U.S. Corporation Income Tax Returns,
Forms 1120 (Forms 1120), for the audit years, petitioner deducted
compensation paid to shareholder surgeons under the heading
“Compensation of officers”, in the following amounts:
1994 1995
Dr. Ellis $239,866 $172,896
Dr. Mann 347,968 452,969
Dr. Miller 355,391 450,485
Dr. Black 357,006 451,775
Total 1,300,231 1,528,125
All such payments were subjected to appropriate wage
withholding and were reported on Forms W-2, Wage and Tax
Statements, issued by petitioner to the shareholder surgeons.
Nature of Petitioner’s Income From Shareholder Surgeons
All of the income received by petitioner on account of the
employment of the shareholder surgeons was received on account of
the provision of medical services by those shareholder surgeons.
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