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1990 deduction, $1,580,631 of petitioner's 1991 deduction, and
$1,198,677 of petitioner's 1992 deduction. The petition in this
case was filed on March 6, 1995.
OPINION
I. Deductibility of Plan Payments
Section 162(a) provides that a taxpayer may deduct all
"ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business". Such
expenses may include "a reasonable allowance for salaries or
other compensation for personal services actually rendered".
Sec. 162(a)(1); sec. 1.162-7(a), Income Tax Regs. For such an
expense to be deductible, two elements must be present: (1) The
amount must be reasonable, and (2) the expense must relate to
compensation for services actually rendered. Elliotts, Inc. v.
Commissioner, 716 F.2d 1241, 1243 (9th Cir. 1983), revg. T.C.
Memo. 1980-282. Where there is evidence that an otherwise
reasonable compensation payment contains a disguised dividend, we
may expand our inquiry into the existence or nonexistence of
compensatory intent. Id. at 1244; see also Ruf v. Commissioner,
T.C. Memo. 1993-81, affd. without published opinion 57 F.3d 1078
(9th Cir. 1995).
Numerous factors in the present case lead us to conclude
that the plan allocations were not intended as compensation for
services rendered. First, in 1990, 1991, and 1992, petitioner
paid Messrs. Blazick and Richter salaries and bonuses totaling
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