- 70 -
Yet, from the notice of deficiency onward respondent clearly
has not taken the all-or-nothing approach. Rather, even though
respondent seems to regard the intent prong as more important
than the reasonable amount prong, at each stage respondent has
applied the intent argument only to so much of petitioner’s
payments to Jack as exceeds reasonable compensation.22
On the basis of the record in the instant case, consistent
with the foregoing, we conclude that part of the amounts
petitioner paid to Jack in each of the years in issue was not
intended as compensation. The part that was not intended as
compensation in each year is the amount by which the payments
exceeded the amounts that we have held to be reasonable
compensation. See supra table 4.
22 For example, in the opening statement at trial,
respondent’s counsel described respondent’s position as follows:
It is Respondent’s position that in spite of Mr.
Brewer’s contributions to Petitioner during the years at
issue, the payments to him over and above what Respondent
has allowed in the trial memorandum should be disallowed as
disguised dividends.
The trial memorandum reference is as follows:
Respondent’s expert witness opinion (as modified by
revised Exhibit IV-3 in the rebuttal report) provides for
reasonable compensation for services rendered to petitioner
by Mr. Brewer of $599,117.00 for 1995 and $485,966 for 1996.
Further, the report allows additional compensation of
$5,000.00 to Mr. Brewer for providing his personal guarantee
to secure a short-term working capital line of credit in
1995. It is respondent’s position that the stated amounts
represent the reasonable compensation to Mr. Brewer and will
be sustained by the Court as such.
Page: Previous 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 NextLast modified: May 25, 2011