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said: “In such circumstances, the proof should be very clear and
very certain that the expenses charged to the corporation were
legitimate business expenses of the corporation. Otherwise, the
opportunity for abuse would be great.” Id. at 151. In Place v.
Commissioner, 17 T.C. 199 (1951), affd. per curiam 199 F.2d 373
(6th Cir. 1952), we dealt with a taxpayer claiming a deduction
for rentals paid his wife for the use of her property in a
manufacturing concern owned and operated by him. The
Commissioner argued that the rentals were excessive. We stated:
The basic question is not whether these sums
claimed as a rental deduction were reasonable in amount
but rather whether they were in fact rent instead of
something else paid under the guise of rent. The
inquiry is whether the petitioner was in fact and at
law “required” to pay these sums as rent. See * * *
[predecessor of sec. 162(a)(3)]. When there is a close
relationship between lessor and lessee and in addition
there is no arm’s length dealing between them, an
inquiry into what constitutes reasonable rental is
necessary to determine whether the sum paid is in
excess of what the lessee would have been required to
pay had he dealt at arm’s length with a stranger.
* * *
Id. at 203.
In 1994, there was a close relationship between the
Duquettes and petitioner. The Duquettes were the sole owners of
petitioner, which was, in effect, Norman’s one-man corporation.
That close relationship gives us reason to question whether their
dealings were at arm’s length, and petitioner has failed to show
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