- 12 - We reject petitioners’ argument. We cannot discern any intention on the part of the Court of Appeals to incorporate a bad faith requirement into the analysis of whether compensation is paid purely for services. The Court of Appeals in Exacto Spring Corp. referenced the two-prong test under section 162 and stated that deductible compensation under section 162 must be both reasonable in amount and a payment purely for services. Id. at 839. In addressing the hypothetical case of a CEO who rendered no services to his company yet received a substantial salary, the Court of Appeals stated as follows: The multi-factor test would not prevent the Tax Court from allowing a deduction in such a case even though the corporation obviously was seeking to reduce its taxable income by disguising earnings as salary. The court would not allow the deduction, but not because of anything in the multi-factor test; rather because it would be apparent that the payment to the employee was not in fact for his services to the company. Treas. Reg. �1.162-7(a); * * *. Id. at 835. The Court of Appeals did not reject section 1.162-7, Income Tax Regs. Instead, as evidenced by the above quotation, the Court of Appeals cites and relies on it for the proposition that compensation that is not paid purely for services is not deductible under section 162. Section 1.162-7(b)(1), Income Tax Regs., speaks specifically to the “purely for services” prong of the test under section 162. It states as follows:Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Next
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