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payments as both corporate expense deductions and repayments of
loans, petitioners have tried to avoid tax at both the corporate
and individual levels.7 Of course, to the extent the corporate
payments were for ordinary and necessary business expenses of the
corporate payor, they would reduce income tax at the corporate
level, while if they were truly repayments of bona fide loans,
they would not be includable in petitioners' income. However,
petitioner has tried to have it both ways, treating the same
payments as both corporate expense deductions at the corporate
level and repayment of loans at the individual level.
We realize that shareholders of closely held C corporations
often withdraw substantial amounts of corporate earnings as
salaries, which the corporations deduct, thereby reducing income
tax at the corporate level, and sometimes raising the question
whether the salaries are reasonable. By contrast, petitioner has
reported relatively small amounts of compensation from JJM and
GAPS, while those corporations have claimed their payments of his
personal living expenses as business deductions. If allowed to
7Respondent determined in her statutory notice that GAPS and
JJM paid a total of $212,380 in 1989 to petitioner or on his or
his family's behalf. Respondent also disallowed, in the
corporations' statutory notices, $144,411 of corporate expense
deductions claimed on the corporations' 1989 pro forma U.S.
corporation income tax returns. Therefore, $144,411 of the
$212,380 paid to petitioner by GAPS and JJM were also deducted by
the corporations at the corporate level. In addition, the
Mancusos reported only $10,259 as compensation to petitioner from
the corporations ($4,000 wages from JJM and $6,259 non-employee
compensation from GAPS) on their 1989 Form 1040.
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