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Respondent determined a deficiency in petitioner's income
tax of $307,671 for 1987. Respondent’s determination is presumed
to be correct, and petitioner bears the burden of proving
otherwise. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933).
B. Whether Petitioner Paid Unreasonable Compensation to its
Officers in the Year in Issue
Petitioner contends that it deducted an unreasonable amount
for officers’ compensation for the year in issue. Petitioner
contends that a total of no more than $421,938 is reasonable
compensation for its three officers. Respondent contends that
the compensation petitioner paid and deducted ($618,295) was
reasonable.
1. Whether All of the Compensation Was Paid for Services
Provided to Petitioner
A corporation may deduct "a reasonable allowance for
salaries or other compensation for personal services actually
rendered". Sec. 162(a)(1). Reasonable compensation must be
purely for services provided to the company which provides the
compensation. Elliotts, Inc. v. Commissioner, 716 F.2d 1241,
1243 (9th Cir. 1983), revg. and remanding T.C. Memo. 1980-282;
sec. 1.162-7(a), Income Tax Regs.
Petitioner contends that Searing and Hanson spent a
substantial amount of time in the years in issue working for
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