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and requires that we consider whether the presumption
of reasonableness is rebutted by evidence that S’s
compensation greatly exceeded the compensation of CEOs
in comparable publicly traded companies. Held,
further, when compared to the compensation of CEOs of
the comparison group companies, the amount of S’s
compensation was reasonable to the extent of
$7,066,912.
Held, further, alternatively, the language in the
notice of deficiency was sufficient to permit
respondent to argue a portion of S’s compensation was
not paid for services rendered and was a disguised
dividend. Held, further, petitioners were not
surprised or prejudiced by respondent’s disguised
dividend argument. Held, further, S’s compensation was
not paid entirely for personal services rendered and
contained a disguised dividend to the extent that it
exceeded $7,066,912.
2. Held, further, MI did not pay TMI’s expenses
pursuant to an oral sponsorship agreement. Held,
further, to the extent the TMI expenses were reasonable
in amount, MI’s primary motive for paying the TMI
expenses was to promote MI’s business, and the TMI
expenses were ordinary and necessary in the furtherance
or promotion of MI’s business, entitling MI to a
deduction under sec. 162(a), I.R.C.
3. Held, further, to the extent MI may not deduct
the TMI expenses as ordinary and necessary business
expenses, the TMI expenses are a constructive dividend
to S, because, as TMI’s president and sole shareholder,
S exercised indirect control over the payments; the
payments lacked a legitimate business justification;
and S directly benefitted from the payments.
4. Held, further, in 1998, S constructively
received the interest that accrued during MI’s TYE 1998
on his loans to MI because MI set apart the accrued
interest, S could have demanded payment of the interest
at any time, and MI placed no substantial restrictions
or limitations on S’s receipt of the interest.
5. Held, further, MI and S failed to demonstrate
that their accountant had necessary and accurate
information for preparing their returns and, therefore,
are liable for sec. 6662(a), I.R.C., accuracy-related
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