- 95 -
753 (1990); Arrowhead Mountain Getaway, Ltd. v. Commissioner,
T.C. Memo. 1995-54 (taxpayer bears burden of disproving
determination in FPAA in case filed under TEFRA partnership
provisions).
1. The Relationship of the Employees and Independent
Contractors to Machise and to the Partnerships
The "real character" of the transactions at issue, as
displayed by the entire record, is that Machise, and not the
partnerships, incurred and paid the payroll costs of the workers
who performed services for Machise. Accordingly, Machise, and
not the partnerships, is entitled properly to deduct those costs
as ordinary and necessary business expenses. See Whipple v.
Commissioner, 373 U.S. 193, 202 (1963); Madison Gas & Elec. Co.
v. Commissioner, 72 T.C. 521, 566-567 (1979), affd. 633 F.2d 512
(7th Cir. 1980).
Conventional employee leasing business arrangements have
presented some interesting tax issues, but we have no occasion to
reach them here. Some employers contended that, by using
employee leasing arrangements, they could avoid application of
the Code provisions that require qualified retirement plans to
make provisions for lower-paid employees. See, e.g., Burnetta v.
Commissioner, 68 T.C. 387 (1977). To deal with those issues,
Congress added section 414(n) and (o) to the Code.29
29In 1982, Congress added sec. 414(n), Tax Equity & Fiscal
Responsibility Act of 1982, Pub. L. 97-248, sec. 248(a), 96 Stat.
(continued...)
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