Eyefull Incorporated - Page 1

                                 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                             
               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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