- 14 - characterize payments as loan repayments), affg. T.C. Memo. 1965- 84. Petitioners alternatively argue that the payments should be treated as additional compensation. Whether amounts are paid as compensation turns on the factual determination of whether the payor intends at the time that the payment is made to compensate the recipient for services performed. See Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 92 (2000), affd. 299 F.3d 221 (3d Cir. 2002). The fact that petitioners now choose to characterize the payments by RAF of the Lenzens’ personal expenses as compensation does not establish that the payments were compensation in fact. See King’s Court Mobile Home Park, Inc. v. Commissioner, 98 T.C. 511, 514 (1992). The facts of this case do not support petitioners’ assertion that RAF intended the payments of the Lenzens’ personal expenses to be additional compensation. Petitioners did not characterize the payments as compensation on their 1999 income tax returns and have not since filed amended returns correcting the characterization. Mrs. Lenzen was not an employee of RAF in 1999. In addition, no evidence is in the record regarding whether Mr. Lenzen’s compensation, with or without the payments by RAF, was reasonable in 1999. The reasonableness of compensation is an essential element in resolving compensation versus dividend issues. See id. at 515. The payments by RAF ofPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
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