30
established by arm's-length negotiations among these closely
related parties. The leases for the El Centro property make
adjustments in rent dependent on the Consumer Price Index. The
total in monthly rents paid by Alondra, Edco, and Pertinax,
according to the 1978-79 leases, of $2,000 per month in 1978,
adjusted for the Consumer Price Index, corresponds to $41,782 per
annum in 1987, but in that year Mr. Munro received $128,160 in
rental income from that property. A variation in the rents paid
by UCIC and/or UCII between those years cannot explain the
discrepancy. In any case, petitioners have not established that
the initial lease terms for the El Centro property were
reasonable. The lease for the Lilac Avenue property is not in
the record.
Under these circumstances, we will not overturn respondent's
determinations with respect to rental payments.
Issue 3. Mr. Munro's Compensation From Pertinax
Section 162(a)(1) allows a partnership, like any other
business, to deduct "a reasonable allowance for salaries or other
compensation for personal services actually rendered" as an
ordinary and necessary business expense. Salary arrangements
between closely held corporations and their shareholders warrant
close scrutiny, Spicer Accounting, Inc. v. United States, 918
F.2d 90, 92 (9th Cir. 1990); Owensby & Kritikos, Inc. v.
Commissioner, 819 F.2d 1315, 1324 (5th Cir. 1987), affg. T.C.
Memo. 1985-267, and the same holds true for payments among
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