- 9 - Tax Regs. The focus of the controversy in this case is the former requirement.2 It is well established that a payment may be deducted as compensation only to the extent that it was actually intended as such. Jefferson Block & Supply Co. v. Commissioner, 59 T.C. 625, 633-634 (1973), affd. without published opinion 492 F.2d 1243 (6th Cir. 1974); Paula Constr. Co. v. Commissioner, 58 T.C. 1055 (1972), affd. without published opinion 474 F.2d 1345 (5th Cir. 1973); Electric & Neon, Inc. v. Commissioner, 56 T.C. 1324, 1340 (1971), affd. without published opinion 496 F.2d 876 (5th Cir. 1974). Respondent takes the position that compensation for prior services was not the purpose of the payment to Mohney, because (1) the services had not been rendered with a view toward compensation; (2) to the extent the services may have been rendered for compensation they were otherwise fully compensated; and (3) the circumstances of the payment indicate a purpose other than compensation. In respondent’s view, the payment was in substance a nondeductible dividend disguised as compensation for prior services and its principal motivation was to avoid liability for the accumulated earnings tax. We disagree. 2 We do not understand respondent to challenge the reasonableness of the payment in relation to the services performed. In the notice of deficiency there was no indication that this was a reason for disallowing the deduction, and respondent presented no argument on this issue at trial or on brief.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