22
OPINION
The disputes in these consolidated cases primarily concern
the deductibility of: (1) Payments by corporate petitioners
Alondra and Edco, which generally went to partnership petitioner
Pertinax and which it included in gross income on its Form
1065;11 and (2) payments by Pertinax, most notably of
compensation and rent to Mr. Munro.
This state of affairs creates a danger of double taxation to
corporate petitioners to the extent that they are disallowed
deductions for payments to Pertinax at level (1). This is
because disallowing deductions to Pertinax at level (2) for
payments that originated in receipts from corporate petitioners
that are also disallowed as deductions to them at level (1) will
cause amounts disallowed to Pertinax to come back to corporate
petitioners as distributive shares of partnership income at level
(1).
In what follows, we will avoid double taxation by treating
Pertinax as a conduit so that the unreasonable compensation
routed from the corporate partners to Mr. Munro through Pertinax
will be regarded for tax purposes as received by Mr. Munro from
the corporate partners. We leave the calculations of the amounts
of the necessary adjustments to the Rule 155 computations. See
discussion infra Issue 6.
11However, rental payments by Alondra, Edco, and Pertinax
went directly to Mr. Munro.
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