Maschmeyer's Nursery Inc. - Page 1

                                 T.C. Memo. 1996-78                                   

                               UNITED STATES TAX COURT                                

                      MASCHMEYER’S NURSERY, INC., Petitioner v.                       
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 22315-94.            Filed February 26, 1996.               

                    R determined that deductions claimed by P for                     
               annual rental payments made to P’s sole shareholder                    
               under a real property lease exceeded the fair rental                   
               value of the property, and disallowed depreciation                     
               deductions claimed by P for improvements made to a                     
               residence used by P’s sole shareholder.  Held:  Rental                 
               payments were not deductible to the extent that they                   
               exceeded the amount allowed by R.  Held, further, the                  
               residence occupied by P’s sole shareholder was used in                 
               P’s business for purposes of sec. 167, I.R.C., and                     
               hence, depreciation may be deducted by P.                              

               F. Pen Cosby, for petitioner.                                          
               Ronald T. Jordan, for respondent.                                      

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