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The question remains, however, whether petitioner is
entitled to the deduction even though payment was made with
checks drawn on the account of his S corporation. A review of
the S corporation's returns for the fiscal years ended March 31,
1983 and 1984, does not reflect that expenses in similar
categories were claimed in amounts approaching those claimed by
petitioners regarding the Mid-Continent corporations. For
example, no amount was claimed for the helicopter for the 1982
fiscal year, and $7,900 was claimed for the 1983 fiscal year,
whereas the amount paid for the helicopter during 1983 and
claimed by petitioners is $35,355.50.
In addition, it was the practice of Home, the accountant, to
classify expenditures of petitioner, which were not Estate's
business expenses, as loans to shareholders. In that connection,
for 1982 and 1983, $108,000 and $121,000 fell into the
nondeductible category, and Home reflected the amounts as
shareholder loans on financial records and tax returns for
Estate. The total loans outstanding as of the end of Estate's
1983 year were $229,000.
Under these circumstances, we find that petitioner has shown
that the amounts being claimed have not been deducted in
connection with petitioner's S corporation and that the
expenditures, although made by the S corporation, were made on
petitioner's behalf. Because petitioners report income and
expenses on a calendar year basis, they are entitled to deduct
only those payments made during the 1983 year--$33,000.
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