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FOOD CATERING COMPANY CONTESTS DENIAL OF $1.2 MILLION IN OFFICERS' COMPENSATION.

JUN. 24, 1992

National Food Enterprises, Inc. v. Commissioner

DATED JUN. 24, 1992
DOCUMENT ATTRIBUTES
  • Case Name
    NATIONAL FOOD ENTERPRISES, INCORPORATED Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
  • Court
    United States Tax Court
  • Docket
    Docket No. 14194-92
  • Authors
    O'Connell, Frank J., Jr.
  • Code Sections
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 92-86442
  • Tax Analysts Electronic Citation
    92 TNT 152-88

National Food Enterprises, Inc. v. Commissioner

 

=============== SUMMARY ===============

 

National Food Enterprises, Inc., of Arlington, Va., a food catering company that operates under the trade name Design Cuisine, is contesting the denial of $1,246,674 in officers' compensation, claiming that the amounts paid were reasonable.

Period and Amount at Issue: 1988 and 1989 -- $559,637

Code Section Classification: 162, 6651, 6661, 6662

 

=============== FULL TEXT ===============

 

PETITION

The Petitioner hereby petitions for a redetermination of the deficiency in tax and additions to tax set forth by the Commissioner of Internal Revenue in her notice of deficiency (bearing symbols: Ms. A. Terrell) dated April 1, 1992, and as the basis for its case alleges as follows:

1. The petitioner is a corporation organized and existing under the laws of the Commonwealth of Virginia, having its principal office at 2659 South Shirlington Road, Arlington, Virginia 22206. Petitioner's employer identification number is 62-1182244. The returns for the periods here involved were filed with the Office of the Internal Revenue Service at Philadelphia, Pennsylvania.

2. The notice of deficiency (a copy of which, including so much of the statement and schedules accompanying the notice as is material, is attached hereto and marked Exhibit A) was mailed to the Petitioner on April 1, 1992 and was issued by the Office of the Internal Revenue Service at Richmond, Virginia.

3. The deficiencies as determined by the Commissioner are in income taxes and penalties for the taxable years ending December 31, 1988, and December 31, 1989, as follows, all of which are in dispute:

   Year Ended      Deficiency in Tax          Penalties

 

   ----------      -----------------          ---------

 

December 31, 1988     $111,290.00    $27,680.00 (Section 6661)

 

 

December 31, 1989     $337,347.00    $15,851.00 (Section 6651(a)(1)),

 

                                     $67,469.00 (Section 6662)

 

 

4. The determination of tax and penalties set forth in the said notice of deficiency is based upon the following errors:

(a) For the taxable year ended December 31, 1988, the Commissioner erred in determining that $289,035.00 compensation paid to officers/shareholders exceeded a reasonable allowance for salaries or other compensation actually rendered.

(b) For the taxable year ended December 31, 1988, the Commissioner erred in determining that $3,799.00 of legal and accounting expenses were not currently deductible.

(c) For the taxable year ended December 31, 1989, the Commissioner erred in determining that $957,639.00 compensation paid to officers/shareholders compensation exceeded a reasonable allowance for salaries or other compensation actually rendered.

(d) For the taxable year ended December 31, 1988, the Commissioner erred in determining that the Petitioner is liable for the substantial understatement of income tax penalty imposed by Section 6661 of the Internal Revenue Code.

(e) For the taxable year ended December 31, 1989, the Commissioner erred in determining that the Petitioner is liable for the failure to file penalty imposed by Section 6651(a)(1) of the Internal Revenue Code.

(f) For the taxable year ended December 31, 1989, the Commissioner erred in determining that the Petitioner is liable for the accuracy-related penalty imposed by Section 6662 of the Internal Revenue Code.

5. The facts upon which the Petitioner relies as the basis of its case are as follows:

(a) The Petitioner's officers/shareholders are the founders and the motivating force behind the success of the Petitioner.

(b) The duties of, and the time devoted to the business by, each of the officers/shareholders have been extensive. In addition to management and supervisory responsibilities, they were involved in purchasing, sales, personnel, administrative, marketing, financial, quality control and other functions of the corporation.

(c) The Petitioner has experienced significant growth since its incorporation on July 6, 1983. Its revenues grew from $2,033,882 in 1984, its first year of operations, to $10,624,661 in 1989.

(d) Each of the Petitioner's officers/shareholders was underpaid in each year prior to 1988, and the compensation paid to each officer/shareholder in 1988 and 1989 was in part for past services rendered in years prior to 1988.

(e) The compensation paid to each of the Petitioner's officers/shareholders in 1988 and 1989 was reasonable in amount.

(f) The relevant facts regarding the Petitioner's deductions of compensation paid to the Petitioner's officers/shareholders for the taxable years ended December 31, 1988, and December 31, 1989, were adequately disclosed in the Petitioner's returns for such years, and/or there is or was substantial authority for the tax treatment of such compensation.

(g) The Petitioner's return for the taxable year ended December 31, 1989, was timely filed or the failure to timely file the return was due to reasonable cause and not to willful neglect.

WHEREFORE, Petitioner prays that this Court may hear the case and determine that:

1. The Commissioner erred as alleged in each assignment of error set forth in paragraph 4 above.

2. There are no deficiencies in tax or penalties for the taxable years ended December 31, 1988, and December 31, 1989.

3. Give such other and further relief as the Court deems fit.

Respectfully submitted,

 

 

Frank J. O'Connell, Jr.

 

OF-0058

 

 

SEYFARTH, SHAW, FAIRWEATHER

 

& GERALDSON

 

Suite 500

 

815 Connecticut Ave., N.W.

 

Washington, D.C. 20006-4004

 

(202) 463-2400

 

 

Attorney for Petitioner

 

 

Dated: June 24, 1992
DOCUMENT ATTRIBUTES
  • Case Name
    NATIONAL FOOD ENTERPRISES, INCORPORATED Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
  • Court
    United States Tax Court
  • Docket
    Docket No. 14194-92
  • Authors
    O'Connell, Frank J., Jr.
  • Code Sections
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 92-86442
  • Tax Analysts Electronic Citation
    92 TNT 152-88
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