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spent 80 percent of his working time treating patients and the
remaining time was spent working on general administrative
matters of the practice. Dr. Katz made all of the medical and
administrative decisions and was responsible for the operation
and management of the corporation.
From its inception, petitioner employed a secretary and
various dental assistants and hygienists, one of whom was and is
Mrs. Katz. Dr. Katz supervised all the employees.
Petitioner maintained a corporate checking account, and all
funds from the dental practice were deposited into that account.
Dr. and Mrs. Katz had signatory authority over the corporate
account, and the corporate expenses were paid from that account.
When Dr. Katz was paid compensation, he wrote a check to himself
from the corporate account. Dr. Katz had personal bank accounts
into which these checks were deposited.
Petitioner’s corporate income tax returns and the Katzes’
joint Federal income tax returns were prepared by Bruce Carter,
C.P.A. Mr. Carter added the checks payable from the corporate
checking account to Dr. Katz to determine the “management” fees
paid to Dr. Katz, and the total amount of the management fees was
deducted as “other deductions” on the corporate returns. The
corporate returns showed no deductions for compensation of
officers.
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Last modified: May 25, 2011