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Our billings to you include amounts paid, on your
behalf, to our drivers, for road expenses; often re-
ferred to as per diem. The amounts billed are of
course, reduced by the amounts you paid directly to the
drivers in the form of “advances”, frequently an amount
approximating an allowable per diem.
As required by tax law and part of our service, we have
tabulated the per diems to be used in your tax return
preparation. As payer of these amounts, you must
afford them special treatment under the 20% reduction
provision of Internal Revenue Code Section 274(n). You
should take this into account when preparing your tax
returns for your business and may want to forward a
copy of this letter to your tax advisor.
The amount of per diem you paid to drivers, or which we
partially paid on your behalf during 1993, was * * *
[total of per diem amounts.30]
Petitioner filed consolidated Form 1120, U.S. Corporation
Income Tax Return (Form 1120), as the parent corporation of a
group of affiliated corporations for each of petitioner’s taxable
years 1993, 1994, 1995, and 1996. Schedule K, Other Information,
included as part of each of those Forms 1120 showed business
activity as “leasing” and product or service as “employees”.
Form 851, Affiliations Schedule, included as part of those Forms
1120 showed TLC’s business activity as “leasing”.
On or about March 27, 1996, respondent notified petitioner
that respondent intended to commence the examination upon which
this case is based.
30The per diem letters for each of the calendar years 1994,
1995, and 1996 were identical to the per diem letter for calendar
year 1993 except that the reference to “20% reduction” was
changed to “50% percent reduction” in order to reflect changes
made to sec. 274(n)(1) by OBRA 1993. See supra note 3.
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