Law Offices--Richard Ashare, P.C., (1999)

Extract

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Law Offices--Richard Ashare, P.C., (1999)

T.C. Memo. 1999-282

UNITED STATES TAX COURT LAW OFFICES--RICHARD ASHARE, P.C., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 18439-97. Filed August 24, 1999.

P is a corporate law firm, and A is its sole shareholder and only professional employee. P has represented a class of plaintiffs from 1974 to date and was awarded $12,567,623 in legal fees when the case was settled in 1989. P received those fees from 1989 through 1992 and is not entitled to further fees for significant ongoing services which it must perform on that case. P's workload in and after 1990 was minimal, except for the ongoing services. P paid A $10,492,500 of "compensation" from 1989 through 1992 and, for each year but one, reported no taxable income. For 1990 P reported taxable income of $3,775,699; $2,487,547 was retained for P's future operations, and $1,282,998 was retained to pay P's 1990 Federal income tax liability. P paid A $1,750,000 of "compensation" during 1993 and reported a $1,857,933 loss that it carried back to 1990 to claim a refund of $581,812. P borrowed $916,756 from A and sold most of its assets to have the funds to pay A the $1,750,000. Exclusive of $1,373,913 of Federal income tax refunds received or accrued by P on its carryback of losses from 1991, 1992, and 1993, P's deficit in retained earnings on Dec. 31, 1993, was $1,463,768.

Held: R did not conduct a second examination of P's books of account in violation of sec. 7605(b), I.R.C.

Held, further, sec. 162(a)(1), I.R.C., allows P to deduct $1,750,000 in 1993 as reasonable compensation paid to A.

Gordon S. Gold, David J. Lieberman, and Barry R. Bess,1 for petitioner.

Trevor T....

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