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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.
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