DocketNumber: Docket No. 20131-93
Citation Numbers: 1996 T.C. Memo. 563, 72 T.C.M. 1606, 1996 Tax Ct. Memo LEXIS 582
Judges: COLVIN
Filed Date: 12/30/1996
Status: Non-Precedential
Modified Date: 4/18/2021
*582 Decision will be entered under Rule 155.
MEMORANDUM FINDINGS OF FACT AND OPINION
COLVIN,
Petitioner is an S corporation. An S corporation is liable for tax on net recognized built-in gain if that gain exceeds 50 percent of its taxable income for the year in issue. Sec. 1374(a). 1 Respondent determined that petitioner is liable for tax under section *583 1374(a).
*584 Petitioner realized capital gains of $ 929,915 in the year in issue. That amount is $ 12,762 more than 50 percent of the amount of petitioner's revised taxable income for the year in issue. Petitioner seeks to increase its taxable income so that its capital gains are less than 50 percent of its taxable income. Thus, petitioner has adopted positions which, if successful, would increase its taxable income. Petitioner contends (1) that it paid unreasonable compensation to its officers during the year at issue, and (2) that it improperly deducted bonuses it paid to its officers in the year at issue (when petitioner declared the bonuses) instead of the following year (when petitioner paid the bonuses).
We must decide the following issues:
1. Whether reasonable compensation for petitioner's officers for the year in issue is $ 618,295 as respondent contends and as petitioner reported on its return, $ 421,938 as petitioner contends, or some other amount. We hold that $ 618,295 is reasonable.
2. Whether, as respondent contends, petitioner must have respondent's consent to delay deductions for bonuses from the year petitioner declared the bonuses to the following year when the bonuses were*585 paid because it is a change in accounting method under section 446(e). We hold that it must.
3. Whether petitioner's net recognized built-in gain was more than 50 percent of its taxable income in the year in issue. We hold that it was.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
A.
Petitioner is a California corporation which was incorporated on August 30, 1960. Its principal place of business was in Orange County, California, when it filed the petition in this case.
Petitioner manufactured and installed flashing, vents, pipes, and light-gauge sheet metal for housing projects in southern California. Ninety percent of petitioner's business was sheet metal installation, and 10 percent was sheet metal fabrication. There were 8 to 10 other companies in Orange County also doing that work. Petitioner served a large part of southern California, including the counties of San Diego, Orange, Los Angeles, and Riverside.
Petitioner's fiscal years ended on June 30 in 1964, 1966 to 1975, 1977, 1978, 1980 to 1982, 1984, and 1985. In 1986, petitioner changed the end of its fiscal year from June 30 to September 30. Petitioner's fiscal year ended*586 on September 30 in 1986 and 1987. In 1987, petitioner changed its fiscal year to end on December 31.
Petitioner had an initial capital investment of $ 65,579 in 1960 and had total assets of $ 4,183,222 on September 30, 1987. Petitioner made a profit every year from 1960 to the year in issue. Petitioner had more jobs under contract in the year in issue than in previous years. The number of petitioner's employees increased greatly from 1984 to 1990.
Petitioner's financial situation in fiscal years 1986 and 1987 was as follows:
FY 1986 | FY 1987 | |
Total sales | $ 6,666,643 | $ 8,621,838 |
Gross profit | 2,746,670 | 3,560,057 |
Ordinary income | ||
before taxes | 803,997 | 893,236 |
Beginning total assets | 3,407,735 | 3,761,574 |
Ending total assets | 3,761,574 | 4,183,222 |
Beginning total equity | 1,822,375 | 2,020,646 |
Ending total equity | 2,020,646 | 3,391,012 |
Beginning total capital stock | ||
and paid-in stock or surplus | ||
less paid treasury stock | 50,446 | 50,446 |
Ending total capital stock | ||
and paid-in stock or surplus | ||
less cost of treasury stock | 50,446 | 50,446 |
Beginning accumulated | ||
adjustments account | 636,158 | 824,587 |
Ending accumulated | ||
adjustments account | 824,587 | 2,190,307 |
Beginning retained earnings | 1,135,771 | 1,135,771 |
Ending retained earnings | 1,135,771 | 1,135,591 |
*587 Petitioner's success in the year in issue resulted in part from an increase in housing construction in southern California.
Petitioner has used the accrual method of accounting since 1964. Petitioner paid administrative salaries of $ 192,079 and cost of labor of $ 2,901,375 during the year in issue.
B.
1.
Milton J. Chasin has a bachelor of science degree in accounting. He was licensed as a public accountant in 1948 or 1949. He was employed as an auditor with the California State Board of Equalization in the late 1940's.
Chasin cofounded petitioner in 1960 with Morley Weis (not otherwise described in the record) and Donald Hanson. Gale Searing became a one-third shareholder of petitioner in 1964 after Weis died. Chasin was responsible for the administration of petitioner. He established and was responsible for petitioner's books and records. He kept accurate records for petitioner from 1960 through the year in issue. He negotiated loans and bought material and equipment for petitioner. He negotiated a line of credit for petitioner with Metropolitan Bank in the year in issue. Chasin always had an assistant to help*588 him with the administrative duties.
Chasin worked about 35 hours per week and took about 5 weeks of vacation in the year in issue.
2.
Hanson graduated from high school. He has no professional licenses. He has owned one-third of petitioner since 1960. He was petitioner's president in the year in issue.
Hanson was more directly involved with petitioner's operations in petitioner's early years than he was during the year in issue. His duties in the early years included fabricating in the shop, installing, and bidding.
During the year in issue, Hanson was responsible for estimating jobs, running the production shop, overseeing union contracts, and supervising petitioner's union employees. His primary duty was to get jobs for petitioner. He was the person primarily responsible for doing this. He reviewed the contracts in which petitioner agreed to provide materials and perform services. Petitioner's shop foreman and two estimators reported to him. Petitioner had no union problems during the year in issue.
Hanson worked for petitioner about 8 hours per day, 50 weeks per year during the year in issue. He also worked for Summit Supply Co., which was owned by Chasin, *589 Hanson, and Searing. He took 4 to 5 weeks of vacation each year.
3.
Searing did not have a high school education. He was a sheet metal apprentice for 3 1/2 years in the early 1950's, after which he received a journeyman's card. He did not have a professional license. He was petitioner's field superintendent during the year in issue.
In the year in issue, Searing was responsible for petitioner's metal work installation. He supervised installers' supervisors and coordinated installation of petitioner's product. He was responsible for petitioner's laborers.
Searing, Chasin, and Hanson knew each other's duties but did not know how to perform them. Searing worked 8 hours per day, 50 weeks per year for petitioner and took about 10 days of vacation during the year in issue. He also worked for North County Builders and Summit Supply Co. Searing received cash distributions, but not wages, from Summit Supply Co.
4.
Chasin, Hanson, and Searing were the only members of petitioner's board of directors from 1964 to the year in issue. They have each owned one-third of petitioner's stock since 1964. During the year in issue, *590 Hanson was president, Chasin was vice president and chief financial officer, and Searing was secretary. Chasin, Hanson, and Searing consulted with each other before making important decisions for petitioner. Chasin, Hanson, and Searing never had a written employment contract with petitioner. During the year in issue, petitioner paid salaries of $ 108,575 to Chasin, $ 131,360 to Hanson, and $ 131,360 to Searing. Petitioner had a retirement plan for its nonunion employees including Chasin, Hanson, and Searing. Petitioner contributed $ 30,000 to its retirement plan in the year in issue for each of its three shareholders.
Each of the three shareholders had authority to sign petitioner's checks during the year in issue without having them cosigned by another shareholder. Chasin, Hanson, and Searing reported their income and expenses on a calendar year basis and used the cash method of accounting.
Petitioner had a $ 50,000 group term life insurance policy for each shareholder.
5.
Chasin, Hanson, and Searing were equal partners of Summit Supply Co., a California general partnership, in 1986 and 1987. Summit Supply Co. bought, developed, *591 and sold real estate. Summit Supply Co. did not pay Chasin, Hanson, or Searing for their services to Summit Supply Co., which consisted of helping to buy, develop, and sell real estate. Chasin, Hanson, and Searing each received equal amounts of the net profits from Summit Supply Co.
Chasin, Hanson, and Searing owned North County Builders with Sherman and Harris (neither of whom is otherwise described in the record). North County Builders was developing an apartment house project in the year in issue.
C.
1.
Petitioner authorized bonuses each year for its officers for their services. Petitioner's board of directors (Chasin, Hanson and Searing) authorized the bonuses to be paid when petitioner's cash position reasonably permitted, but not later than September 15 of each taxable year from 1966 to 1986 except 1971 and 1972. In taxable years 1971 and 1972, petitioner's board of directors authorized an approximate amount for a combined salary and bonus for each officer.
Chasin, Hanson, and Searing met each year to consider factors such as petitioner's success, development, profits, needs, and *592 tax considerations and their own tax considerations in deciding the amount of the bonuses. Chasin, Hanson, and Searing agreed unanimously on the amounts of their bonuses each year, including the year in issue. Each year, Chasin, Hanson, and Searing signed a corporate resolution stating what they decided about their bonuses.
2.
Petitioner paid the bonuses after the end of each of its fiscal years before the year in issue, but not later than September 15 of each year, except the year in issue. For those years, the resolution authorizing the bonuses said: NOW, THEREFORE, BE IT RESOLVED, that a bonus of [amount for each year for each officer] * * * to each of the * * * [officers] be and the same hereby is granted and awarded, the same to be paid to said persons as soon hereafter as the cash position of the corporation reasonably permits, but in any event on or before September 15, * * * [year bonuses are authorized].
Petitioner paid the bonuses after the end of its fiscal years ending on September 30 in 1986 and 1987 and before December 15 of those years.
Chasin, Hanson and Searing unanimously approved the following resolution on September*593 16, 1987: WHEREAS, the success and development of the business of this corporation during the fiscal year to end September 30, 1987 is largely the result of the efforts of certain of the key personnel of this corporation; and WHEREAS, it is deemed to be to the best interests of this corporation to provide for a special reward for the efforts of said key personnel in order that said key personnel be furnished with a continuing incentive; and WHEREAS, DONALD HANSON, President of this corporation, MILTON J. CHASIN, Vice President of this corporation, GALE SEARING, Secretary of this corporation, have each contributed in a special degree to the success of this corporation; and WHEREAS, PAUL HARDIE, Estimator, HERMAN AUSLANDER, Field Superintendent, TOM KRAEMER, Assistant Field Superintendent, GEORGE KARSTEN, Shop Superintendent, BILL BUSHEY, Estimator, and LINDA SANDS, Bookkeeper, are also worthy of special recognition; NOW, THEREFORE, BE IT RESOLVED, that the following bonuses be paid by the corporation on or before December 15, 1987:
Employee | Amount of Bonus |
Herman Auslander | $ 46,000 |
Bill Bushey | $ 7,200 |
Paul Hardie | $ 47,000 |
George Karsten | $ 46,000 |
Tom Kraemer | $ 25,000 |
Linda Sands | $ 6,000 |
Officer | Amount of Bonus |
Milton J. Chasin | $ 75,000 |
Donald Hanson | $ 75,000 |
Gale Searing | $ 97,000 |
The resolution for the year in issue required petitioner to pay the bonuses by December 15, 1987. Chasin, Hanson, and Searing could not have been paid the bonuses in the year in issue without the consent of all of them.
3.
On September 30, 1987, pursuant to the board's resolution, petitioner debited its payroll expense--officers account by $ 247,000 for bonuses it declared that year. Chasin recorded petitioner's accrued liability for wages in a document entitled, "Summit Sheet Metal Company, Inc. Accrued Wages". Chasin entered each officer's bonus on that document on September 30, 1987.
Petitioner paid the bonuses on December 15, 1987, by paying Federal and State payroll taxes for its officers in the following amounts: $ 75,000 for Chasin, $ 75,000 for Hanson, and $ 97,000 for Searing.
4.
Petitioner declared bonuses for its three officers near the end of each of its fiscal years from 1966 to the year in issue and paid the bonuses in the first 75 days following*595 the end of the fiscal year in which they were declared. Petitioner accrued the deduction for the bonuses in the year the bonuses were declared in its fiscal years from 1966 through 1987. 2
D.
Petitioner sold a building on May 1, 1985, and realized a net capital gain of $ 1,160,069. Petitioner reported the gain under the installment method. Petitioner received the final payment of $ 1.2 million in the year in issue. Of that amount, $ 929,915 was taxable.
E.
Petitioner was a subchapter C corporation from August 30, 1960, to June 30, 1985. On July 1, 1985, petitioner elected to be taxed under subchapter S.
Petitioner deducted $ 247,000 for bonuses it paid*596 to its officers as part of the compensation of $ 618,295 it paid to the officers (not counting fringe benefits) for the year in issue.
Petitioner reported the following on a Schedule K attached to its S corporation return for the year in issue:
Ordinary income | $ 893,236 |
Income from rental real | |
estate activity | 38,033 |
Long term capital gain | 929,915 |
Charitable contributions | (2,845) |
Total | $ 1,858,339 |
Petitioner did not include the $ 929,915 gain on its tax return for 1987. However, petitioner reported each officer's share on his respective Schedule K-1. Petitioner allocated the gain to Chasin, Hanson, and Searing, each of whom reported one-third of the gain on his individual income tax return for 1987.
Petitioner seeks to delay the year of its deduction of bonuses for its officers from the year in issue to the following year. Petitioner did not ask respondent for permission to change its method of accounting for the year in issue.
Petitioner overstated its ending inventory on its return for 1987 by $ 24,033.
OPINION
A.
Petitioner realized a $ 1,160,069 net capital gain from the sale of a building in May 1985. At that time, petitioner*597 was a C corporation. Petitioner reported the gain on the installment method, thereby postponing recognition of $ 929,915 of the gain until 1987 when it was to receive the last installment. Sec. 453(c).
On July 1, 1985, petitioner elected to be taxed as an S corporation. At that time, petitioner had a realized but unrecognized capital gain of $ 929,915 from the sale. That amount is $ 12,762 more than 50 percent of the amount of petitioner's revised taxable income for the year in issue (before deciding the issues in dispute here). 3 An S corporation must pay tax if its net recognized built-in gain is more than 50 percent of its taxable income. Sec. 1374(a).
Respondent determined a deficiency in petitioner's income tax of $ 307,671 for 1987. Respondent's determination is presumed to be correct, and petitioner bears the burden of proving otherwise. Rule 142(a);
B.
Petitioner contends that it deducted an unreasonable amount for officers' compensation for the year in issue. Petitioner contends that a total of no more than $ 421,938 is reasonable compensation for its three officers. Respondent contends that the compensation petitioner paid and deducted ($ 618,295) was reasonable.
1.
A corporation may deduct "a reasonable allowance for salaries or other compensation for personal services actually rendered". Sec. 162(a)(1). Reasonable compensation must be purely for services provided to the company which provides the compensation.
Petitioner contends that Searing and Hanson spent a substantial amount of time in the years in issue working for North County Builders, which were businesses other than petitioner. Hanson testified that he worked about 25 hours a week for petitioner. *599 Searing testified that he worked for petitioner from 2 to 10 hours a week. Respondent contends that petitioner paid its officers exclusively for services performed for petitioner.
We agree with respondent. Petitioner's interrogatory answers conflict with Hanson's and Searing's testimony. In supplemental interrogatory response for petitioner, Chasin stated that Searing and Hanson "rendered services for petitioner based upon an 8-hour day for 50 weeks per year." The supplemental response suggests that the officers provided substantial services for petitioner. Chasin testified that the supplemental response included services for business ventures other than petitioner. Chasin's explanation is contrary to the language in the supplemental response, which states that the services were for petitioner.
North County Builders had five owners, including petitioner's three officers. It is implausible that petitioner would pay salaries that North County Builders owed.
Petitioner's board of directors adopted written resolutions which stated that petitioner declared the bonuses because its officers contributed substantial services to petitioner. Petitioner contends that this language from its*600 resolutions means nothing because it used the identical language for many years as boilerplate. We do not believe that the board of directors took the decisions to pay the bonuses and the resolutions approving them as lightly as petitioner suggests.
We conclude that petitioner paid the compensation at issue for services performed by its officers for petitioner.
2.
Whether the amount of compensation is reasonable is a question of fact.
Petitioner called an expert, Edwin A. Scott, Jr. (Scott), to testify about the reasonable compensation issue. Respondent did not call an expert to testify. Expert witnesses' opinions may help the Court understand an area requiring specialized training, knowledge, or judgment.
a.
An employee's superior qualifications for a position may justify high compensation. See, e.g.,
Each of petitioner's officers was well qualified for his position. All three officers performed successfully for petitioner.
Petitioner contends that a suitable replacement could perform the job of each officer. Petitioner's point does not establish much because it does not address how difficult it would be or what amount of pay would have been required to find someone suitable.
This factor tends to show that the compensation at issue was reasonable.
b.
The position held by the employee, hours worked, and duties performed may justify high compensation.
Petitioner contends that its officers had minimal responsibilities. We disagree. Each officer was responsible for an important part of petitioner's operations. Petitioner's officers did not know how to perform each other's jobs. This made each of them less valuable to petitioner. By the year in issue, petitioner was a well-established and stable business. Petitioner's officers were no doubt required to work less than if petitioner had been a new business.
On balance, this factor tends slightly to show that the compensation at issue was reasonable.
c.
The size and complexity of a taxpayer's business can indicate whether compensation is reasonable.
Considering both the testimony and the other evidence of petitioner's business, we conclude that this factor tends to show that the compensation at issue was reasonable.
d.
Courts have compared compensation to sales and gross and net income in deciding whether compensation is reasonable.
Petitioner's compensation of officers was 7.2 percent of sales. In
This factor tends to show that the compensation at issue was reasonable.
e.
General economic conditions may affect a company's performance and, thus, show the extent, if any, of an employee's effect on the company.
Petitioner's sales increased more than 70 percent in the 2 years before the year in issue. Petitioner's officers testified that petitioner succeeded because there was an economic boom in Southern California before and during the year in issue. Respondent did not effectively challenge their testimony on this*606 point. This factor tends to show that the compensation at issue was unreasonable.
f.
Courts have considered the taxpayer's salary policy for its other employees in deciding whether compensation is reasonable.
g.
The past and present financial condition of the company is relevant to deciding whether compensation is reasonable.
Petitioner grew from total equity (capital stock and paid-in surplus) of $ 65,579 to $ 2,020,646 for the year in issue. Petitioner always made a profit. For the year in issue, petitioner's gross profit was 41 percent of gross income, return on sales was 10.3 percent, return on assets was 22.5 percent, and return on equity was 33 percent. Petitioner's officers' compensation decreased 16.3 percent as a percentage of net sales from the year before the *607 year in issue to the year in issue while its sales and gross profit increased nearly 30 percent.
Petitioner points out that a survey by the Sheet Metal and Air-Conditioning Contractors' National Association (SMACNA) dated October 26, 1988, shows that petitioner's compensation of its officers exceeds the average amount paid by similar firms. However, this does not establish that the compensation of petitioner's officers was unreasonable because the SMACNA survey also shows petitioner performed considerably better financially than the SMACNA survey respondents.
SMACNA sent each member a questionnaire asking for financial information, such as gross profit, gross sales, and executive compensation. Forty-one SMACNA survey respondents had sales of more than $ 8.2 million. The following chart compares the SMACNA survey results for these respondents with data for petitioner for the year in issue.
SMACNA survey respondents | ||
with sales over $ 8.2 Million | ||
Net income | SMACNA | |
before tax as a -- | average | Petitioner |
Percent of sales | 3.5 | 10.3 |
Percent of assets | 9.3 | 22.5 |
Percent of net worth | 25.0 | 33.0 |
The 41 respondents had an average gross profit margin of 18.8 percent*608 of sales; petitioner had 41 percent in the year in issue. Petitioner's financial performance was superior to that of SMACNA survey respondents which had sales exceeding $ 8.2 million.
This factor tends to show that the compensation at issue was reasonable.
h.
In deciding whether compensation is reasonable, we compare it to compensation paid for comparable positions in comparable companies.
i.
An employer may deduct compensation paid in a year even though the employee performed the services in a prior year.
Petitioner's officers testified that petitioner may have underpaid them in the early years, but that petitioner caught up at least 10 years before the years in issue. Respondent points out that petitioner offered no documentary evidence on this factor; however, respondent offered no evidence that contradicts the testimony of petitioner's officers. Their testimony was credible on this point. We conclude that none of the compensation in the year at issue was paid for services performed in prior years. This factor tends to show that the compensation was unreasonable.
j.
We closely scrutinize compensation if the employee controls the employer to see whether it is unreasonable in amount or payment for something other than the employee's services.
Chasin, Hanson, and Searing owned 100 percent of petitioner's stock. That leads us to consider whether an independent investor would have approved the compensation in view of the nature and quality of the services performed and the effect of those services on the investor's return on his or her investment.
This factor tends to show that the compensation at issue for services to petitioner was reasonable.
3.
We conclude that the compensation of petitioner's officers in the year in issue was reasonable because of their qualifications and the scope of their duties, petitioner's size, growth, and financial success, the officers' compensation in relation to petitioner's sales, and the fact that, according to the SMACNA*611 survey, the taxpayer performed well compared to other reasonably comparable firms.
C.
1.
Petitioner seeks to change the year it deducts its officers' bonuses from the year it authorized them, as petitioner reported on its return, to the following taxable year, in which the officers received and reported the bonuses.
Respondent contends that petitioner needed but did not have respondent's permission to change the year it deducted its officers' bonuses. 4 Sec. 446(e).
*612 Petitioner contends that changing the year it deducts its officers' bonuses is not a change of accounting method, and that it is a correction required to comply with section 267(a). Section 267(a)(2), which was enacted in 1984, bars a taxpayer from deducting a payment to a related taxpayer before the related taxpayer includes the payment in income. Petitioner contends that its accrual of a deduction for the bonuses in the year they are awarded (before they are paid) violates section 267(a)(2) because petitioner's officers included the bonuses in income in a later year. Petitioner contends that it does not need respondent's consent to change to comply with section 267(a)(2). Similarly, petitioner contends that it does not need respondent's consent to change from treating the bonuses incorrectly to treating them correctly. 5
*613 Respondent does not dispute that Chasin, Hanson, and Searing are related for purposes of section 267(a). However, even if section 267(a) applies, we conclude for reasons discussed next that petitioner would need respondent's consent to change the year it deducts the officers' bonuses.
2.
We first decide whether changing the year petitioner deducts its officers' bonuses is a change in the treatment of a material item for purposes of section 446(e).
A taxpayer generally must have the consent of the Secretary to change the method of accounting it uses for material items. Sec. 446(e);
Petitioner's officers' bonuses are material items for purposes of section 446(e) because petitioner seeks to change the year it deducts the bonuses from the year it declared them to the following year.
3.
Before raising the section 267(a)(2) issue here, petitioner had consistently deducted its officers' bonuses in the year it authorized them. A change in the consistent treatment of a material item generally requires the Commissioner's consent under section 446(e).
Petitioner contends that an accounting change made to comply with section 267(a)(2) does not require respondent's consent. Petitioner relies on
The court in
In The Commissioner's consent to a change in accounting methods is required regardless of whether the change is from one*617 proper method to another proper method or from an improper method to a proper one.
In In addition, consent is required when a taxpayer, in a court proceeding, retroactively attempts to alter the manner in which he accounted for an item on his tax return. If the alteration constitutes a change in the taxpayer's method of accounting, the taxpayer cannot prevail if consent for the change has not been secured. [Citations omitted. 6]
*618 Petitioner points out that a taxpayer may recharacterize interest or salary as dividends without being considered to have changed its method of accounting.
Petitioner relies on
In
Petitioner has cited other cases relating to a taxpayer's change in accounting methods. We have considered all of those cases; the cases discussed above are those that most closely resemble the instant case.
D.
We hold that petitioner must have respondent's consent under section 446(e) to change the year it reports payment of the bonuses. Petitioner does not have respondent's consent. Thus, petitioner may deduct its officers' bonuses only in the year in issue as it reported on its return.
For the foregoing reasons, we conclude that petitioner is liable for the tax under section 1374(a) on the $ 929,915 net capital gain because the net capital gain is more than 50 percent of petitioner's taxable income.
To reflect the foregoing and concessions,
1. Section references are to the Internal Revenue Code in effect for the year in issue. Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. This fact is established for 1984 to 1987 by petitioner's tax returns; for 1966 to 1983 we infer that petitioner's practice was the same because petitioner's practice of declaring and paying bonuses was consistent from 1966 to 1987, and because neither party contends otherwise.↩
3. This takes into account petitioner's inadvertent $ 24,033 understatement of its ending inventory.↩
4. Petitioner contends that respondent's contention that petitioner must have consent under sec. 446(e) is new matter on which respondent bears the burden of proof. We agree. Respondent first raised this issue in the amended answer. A new theory that is presented to sustain a deficiency is treated as a new matter when it either increases the original deficiency or requires the taxpayer to present different evidence.
Petitioner contends that respondent failed to carry the burden of proof. We disagree. The parties do not dispute that petitioner had a longstanding practice of deducting the bonuses in the year it authorized them and paying them in the following year, that petitioner seeks to change the year it deducts the bonuses for its officers from the year in issue to the next taxable year to comply with sec. 267(a) several years after the law changed, and that petitioner does not have respondent's consent to do so. We decide this issue based on those facts. Thus, the burden of proof does not affect our decision on this issue.↩
5. Respondent alternatively contends that petitioner complied with sec. 267(a)(2) because petitioner's officers constructively received their bonuses in the year in issue. We need not decide this issue because we conclude that sec. 267(a) does not apply, and if it did, petitioner requires respondent's consent to change the year it deducts its officers' bonuses.↩
6. In dicta, the Court in
Knight-Ridder Newspapers, Inc. v. United States , 743 F.2d 781 ( 1984 )
Estate of Gerald L. Wallace, Deceased, Celia A. Wallace, ... , 965 F.2d 1038 ( 1992 )
Seymour Silverman v. Commissioner of Internal Revenue , 538 F.2d 927 ( 1976 )
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H. F. Campbell Company (Formerly H. F. Campbell ... , 443 F.2d 965 ( 1971 )
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Troy R. Douthit and Mildred P. Douthit v. United States of ... , 432 F.2d 83 ( 1970 )
James D. Kennedy, Jr. And Dorothy H. Kennedy, and Cherokee ... , 671 F.2d 167 ( 1982 )
Herbert S. Witte v. Commissioner of Internal Revenue , 513 F.2d 391 ( 1975 )
Elliotts, Inc. v. Commissioner of Internal Revenue , 716 F.2d 1241 ( 1983 )
Mayson Mfg. Co. v. Commissioner of Internal Revenue , 178 F.2d 115 ( 1949 )
American Foundry, a Corporation v. Commissioner of Internal ... , 536 F.2d 289 ( 1976 )
United States v. George v. H. Kleifgen , 557 F.2d 1293 ( 1977 )
charles-schneider-co-inc-v-commissioner-of-internal-revenue-future , 500 F.2d 148 ( 1974 )
Botany Worsted Mills v. United States , 49 S. Ct. 129 ( 1929 )
Home Interiors & Gifts, Inc. v. Commissioner , 73 T.C. 1142 ( 1980 )
Lucas v. Ox Fibre Brush Co. , 50 S. Ct. 273 ( 1930 )
Welch v. Helvering , 54 S. Ct. 8 ( 1933 )
Helvering v. National Grocery Co. , 58 S. Ct. 932 ( 1938 )