V.R. DeAngelis M.D.P.C. & R.T. Domingo M.D.P.C., V. R. DeAngelis M.D.P.C., Tax Matters Partner, et al. - Page 3




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          exception of the Capizzis, who had no policy insuring either of             
          their lives) and were each payable to the beneficiaries of the              
          insured’s choosing in the event of the insured’s death.  The                
          sixth life insurance policy was written on the life of Kerry                
          Quinn (Ms. Quinn), an employee of VRD/RTD who was its office                
          manager.                                                                    
               For each subject year, respondent determined in the notice             
          of final partnership administrative adjustment (FPAA) that                  
          VRD/RTD could not deduct the $585,000 it paid in that year to               
          STEP as contributions to a welfare benefits fund.  The FPAA                 
          stated in part that the payments were not ordinary and necessary            
          business expenses under section 162(a).                                     
               Respondent determined in the notices of deficiency that the            
          individual petitioners had the following deficiencies in their              
          1993 and 1994 Federal income taxes:                                         
          Individual Petitioners     1993         1994                                
          DeAngelises         $246,768     $208,447                                   
          Domingos             185,422      184,932                                   
          Durantes              29,174       42,020                                   
          Capizzis               1,957        1,546                                   
          The deficiencies generally are based on two determinations.                 
          First, respondent determined that the payments that the S                   
          corporations made to VRD/RTD for contribution to the STEP plan              
          were not deductible by the S corporations because they were not             
          ordinary and necessary business expenses under section 162(a).              
          Respondent accordingly increased the net amount of passthrough              






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