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Issue 1. Corporate Expense Deductions
The corporate petitioners bear the burden of establishing
that they are entitled to the deductions claimed on their 1989
pro forma tax returns. Rule 142(a); Welch v. Helvering, 290 U.S.
111, 115 (1933). After concessions by the parties, four business
expense categories remain in issue.
8(...continued)
from GAPS. However, respondent did not apportion the adjustments
between the corporations, instead reducing the total amount of
payments by the total amount of adjustments to arrive at a total
amount of $145,428 in corporate distributions. Only at this
point did respondent apportion this amount between the two
corporations to arrive at the amounts of $105,220 and $40,208 for
GAPS and JJM respectively.
We have worked backwards from the amounts of $105,220 and
$40,208 to reapportion the $212,380 between GAPS and JJM,
assuming that petitioner deposited his Mass Mutual wage payments
in the JJM account. We therefore assume that respondent reduced
the JJM payments by this amount. It is clear from the record
that the $4,000 in wages and the loan amount of $10,000 are
allocable to JJM. We have likewise assumed that the $6,259 of
non-employee compensation was from GAPS. It is clear from the
record that the loan amount of $8,281 is allocable to GAPS. With
these adjustments we arrive at the following amounts:
GAPS JJM
Amount of distribution in statutory notice $105,220 $40,208
Non-employee compensation and wages 6,259 4,000
Mass Mutual payments --- 38,412
Shareholder loans reflected on the Schedules L 8,281 10,000
Total payments 119,760 92,620
At trial, respondent allowed an additional reduction in the
amount of distributions for advertising expenses and conceded
additional deductions therefor of $655 and $656 by JJM and GAPS,
respectively.
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