Eyefull Incorporated - Page 8

                                       - 8 -                                          
          satisfication of any amounts due him for consulting and advisory            
          services,” and that “the amount has been acknowledged by the                
          authorized representative of the shareholders to be consistent              
          with the agreements and understandings previously made and                  
          entered into.”  Hagerman approved the resolution on July 30,                
          1991.  The payment represented 3.3 percent of petitioner’s                  
          cumulative gross receipts since 1985.                                       
               Mohney received a Form 1099 reflecting the payment and                 
          included it in income for 1991 as gross receipts from his                   
          consulting business.  Petitioner deducted the payment in                    
          computing its taxable income for the taxable year ended August              
          31, 1991 (TYE 8/31/91).  In her notice of deficiency respondent             
          disallowed the full deduction.                                              
                                     Discussion                                       
               The first issue raised by petitioner’s payment to Mohney of            
          $274,980 in TYE 8/31/91 is whether it may be deducted as                    
          compensation.  If so, we must decide for what taxable year(s) it            
          is deductible.  Section 162(a)(1) provides that deductible                  
          business expenses include a reasonable allowance for salaries or            
          other compensation for personal services actually rendered.  In             
          general the deductibility of a payment characterized as                     
          compensation turns on two requirements:  The payment must be                
          purely for services, and it must be reasonable in amount.                   
          Elliotts, Inc. v. Commissioner, 716 F.2d 1241, 1243-1244 (9th               
          Cir. 1983), revg. T.C. Memo. 1980-282; sec. 1.162-7(a), Income              




Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  Next

Last modified: May 25, 2011