Attorney-at-Law

THE BOSS AS CONSULTANT

In Uncategorized on 10/16/2017 at 16:08

I will not repeat the story of the cat who, returned from the veterinarian’s surgery, took up the role of consultant.  I will instead return to Jeffrey Wycoff and Merrie Pisanno-Wycoff, 2017 T. C. Memo. 203, filed 10/16/17.

Doubtless you remember Jeff and Merrie, and their conflicted past? No? Well, take a fast gander at my blogpost “Open and Shut,” 1/13/14. Merrie’s innocent spousery plays no part here, and Ch J L Paige (“Iron Fist”) Marvel doesn’t find enough to let Jeff and Merrie shift the burden of proof, and anyway falls back on “preponderance of evidence.”

Jeff and Merrie claim IRS shifted ground from the SNOD, so presumption of correctness is out. While some 9 Cir cases say so, Jeff and Merrie are Golsenized to 10 Cir.

Anyway “Although in the notice of deficiency respondent disallowed petitioners’ claimed deductions for management fees, on brief he allowed the deductions to the extent petitioners proved that [management corp.] had paid wages or payroll taxes.  When the Commissioner concedes certain facts or issues, the notice of deficiency is still presumed correct.  See U.S. Holding Co. v. Commissioner, 44 T.C. 323, 328 (1965).” 2017 T. C. Memo. 203, at pp. 34-35.

The deal is a couple Sub Ss (hi Judge Holmes) feeding an ESOP enclosing a Rabbi Trust (see infra, as my high-priced colleagues say), to siphon off profits as salary and deferred comp to the Boss Hoss of the whole outfit, namely Jeff, via a management company he owns and controls, along with the rest of the structure.

“A rabbi trust is an unfunded deferred compensation plan.  Funds deposited into the trust remain subject to the claims of the employer’s creditors. The employee beneficiary of the rabbi trust is not taxed on the funds deposited into the account until the funds are actually distributed to him.  Likewise, the employer is not entitled to a deduction for the funds deposited into the rabbi trust until the rabbi trust actually distributes the contributions.” 2017 T. C. Memo. 203, at p. 10, footnote 8. (Citations omitted). Since the Rabbi Trust was part of the qualifying ESOP, it’s tax-exempt and therefore doesn’t need a current deduction.

There are the usual dueling experts, but Jeff is overcompensated on a comparable profits method computation, thus more income and the 20% chop.

Jeff and Merrie were warned by the promoters that this was aggressive tax planning, and that they should seek independent advice; are you surprised that they never did?

Though there’s a somewhat tangled fact pattern here, the endstory is pretty clear. If the boss is also the consultant, the fees he gets are an IRS free-fire zone.

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