I can’t remember in which blogpost I quoted the late Henry Miller, Esq., renowned plaintiff’s  lawyer, but the quote is a classic: “When your witness shreds your client’s case on the stand, smile your sweetest smile, as if that was exactly the testimony you wanted, and wait for the recess to go into the hallway and sob.”

I don’t know if the Front Four attorneys for ASPRO, Inc., 2021 T. C. Memo. 8, filed 1/21/21, took Mr. Miller’s advice, but when “management fees” (deductible by the client) collide with “excessive compensation” (definitely not), and the fallout is nondeductible dividends, you don’t want this testimony from one of your client’s stockholders (who got said fees).

“One of petitioner’s board members, BM, credibly testified that he understood a dividend to be a ‘distribution of profits’; and when he was asked to describe his understanding of the difference between a dividend and a management fee, he testified that ‘a management fee is a distribution from the company that’s not taxed by the company and a distribution is a [sic] after-tax distribution of profits. * * * They’re both distributions.’” 2021 T. C. Memo. 8, at pp. 26-27. (Name omitted).

ASPRO’s three stockholders were using “management fees” paid to them in place of dividends or direct (excessive) compensation.

Judge Pugh runs through a bunch of factors, but BM’s testimony tells the whole story.

Edited to add, 1/27/21: I quoted Henry Miller, Esq.’s phrase somewhat differently in my blogpost “A Grammatical Shift,” 5/14/13.