T.C. Memo. 1996-238
UNITED STATES TAX COURT
EYEFULL INCORPORATED, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3893-94. Filed May 22, 1996.
1. Over several years M performed substantial
services without compensation for P, a
domestic corporation that M owned indirectly
through two tiers of foreign entities. There
was no written agreement for the services and
no contemporaneous record of an obligation to
pay for them. When P made a payment to M and
deducted it as compensation for the prior
services, R recharacterized the payment as a
dividend. Held: The payment is deductible
as compensation, because remuneration was
consistent with the expectation of the
parties at the time the services were
performed.
2. P accumulated earnings without specific,
definite and feasible plans to use the
accumulations and lent substantial amounts to
affiliates for purposes unrelated to its
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