                                                                            FILED
                           NOT FOR PUBLICATION
                                                                             JUN 19 2018
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS


                            FOR THE NINTH CIRCUIT


LITTLE MOUNTAIN CORPORATION,                     No.   16-73957

              Petitioner-Appellant,              Tax Ct. No. 581-15

 v.
                                                 MEMORANDUM*
COMMISSIONER OF INTERNAL
REVENUE,

              Respondent-Appellee.


                           Appeal from a Decision of the
                             United States Tax Court

                        Argued and Submitted June 6, 2018
                              Pasadena, California

Before: WARDLAW and CHRISTEN, Circuit Judges, and MOLLOY,** District
Judge.

      Little Mountain Corporation (“LMC”) appeals the Tax Court’s ruling that it

had not met its burden of substantiating a $896,493 deduction for compensation

under IRC § 162(a)(1) on its 2011 tax return. We review the Tax Court’s legal

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
              The Honorable Donald W. Molloy, United States District Judge for
the District of Montana, sitting by designation.
conclusions de novo and its factual determinations for clear error. Cooper v.

Comm’r of Internal Revenue, 877 F.3d 1086, 1090 (9th Cir. 2017). We affirm.

      The Tax Court’s conclusion that LMC failed to substantiate that Always

Frank Consulting (“AFC”) was paid $896,493 was not clearly erroneous. Franklin

and Susan Sanders testified that AFC received that amount. However, the Tax

Court’s conclusion was plausible and supported by record evidence: the relevant

checks were made out to “cash,” not to AFC or Franklin Sanders; they were

endorsed by individuals unaffiliated with AFC; LMC provided no documentation

indicating that AFC requested payment in cash; there were no receipts from AFC

indicating that it or Franklin received the cash; and LMC did not issue a Form

1099 to AFC or Franklin Sanders. Furthermore, while Susan Sanders maintained a

ledger indicating $896,493 in “consulting” expenses, the ledger’s weight must be

discounted because the dates recorded in the ledger do not match the dates on the

corresponding checks made out to “cash.”

      Nor was the Tax Court’s finding that LMC failed to substantiate that the

$896,493 was “compensation” as required by IRC § 162(a)(1) clearly erroneous

because it was plausible and supported by record evidence. First, neither Susan

Sanders nor Franklin Sanders was able to testify with specificity about the work

AFC performed for LMC supporting particular consulting invoices, and the


                                         2
invoices themselves do not include any description of tasks performed but instead

include only a generic statement that consulting, writing, and office managerial

services were performed. Second, while Franklin Sanders testified that he worked

approximately the same number of hours each week with one particularly busy

week each month, the invoiced amounts per day of work vary significantly and

randomly, lacking a month-to-month pattern. The record evidence supports the

conclusion that the payments to AFC were based on LMC’s profit, not AFC’s

services. The dates on the actual checks did not match the ledger dates; AFC had

not provided hourly rates or a fee schedule for its services to LMC; the $896,493

paid to AFC was a significant majority of LMC’s net corporate income; and no tax

forms were issued to AFC. Cf. 26 C.F.R. § 1.162-7(a) (requiring payments to be

“purely for services” to be deductible compensation under IRC § 162(a)(1)).

      AFFIRMED.




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