48
include respondent's trial memorandum, which we have admitted sua
sponte, permits us to conclude that the bulk of the disallowed
payments made by the corporate partners to Pertinax was used by
Pertinax to make payments to Mr. Munro that exceeded reasonable
compensation. The record also discloses considerable payments by
Alondra and Edco to Pertinax during their taxable years in
question.
Unless we treat Pertinax as a mere conduit, our upholding of
respondent's disallowances of deductions for the same
unreasonable compensation at both the partnership and the
corporate partner levels will give respondent two bites of the
apple. If we disallow the deductions at the partnership level,
having also disallowed deductions for the same payments at the
corporate level, then under the rules of TEFRA (Tax Equity and
Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec.
402(a), 96 Stat. 648) and section 6226 respondent will be able--
and indeed obliged--to treat as income to the partners the
payments by them, Munro v. Commissioner, 92 T.C. 71, 74 (1989),
that had also been disallowed as deductions to them at the
corporate level.
At trial, we asked the parties to address in their briefs
the consequence of denying the deductions claimed by Pertinax for
compensation paid to Mr. Munro that had, in effect, been received
by Pertinax from its partners and reported by Pertinax as gross
income. It appeared to us then, as it does now, that disallowing
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