- 8 -
respondent determined that the renewed loan was a taxable
distribution to petitioners for their 1988 taxable year pursuant
to section 72(p)(1)(A).
On its Federal income tax returns for the taxable years in
issue, the corporation characterized certain payments that it
made to and for the benefit of petitioner from the loan and
exchange account and another account as business deductions.
Respondent disallowed certain deductions on the grounds that the
corporation did not establish a business purpose for the
payments. Consequently, respondent recharacterized the payments
as constructive dividends that were not deductible to the
corporation (the disallowed corporate payments).4
OPINION
The first issue we decide is whether the corporation is
entitled to deduct certain disallowed corporate payments as
compensation expenses pursuant to section 162.5 The corporation
contends that the disallowed corporate payments are compensation
for petitioner's services and, therefore, are deductible pursuant
4 See appendix for a listing of the disallowed corporate
payments and the parties' concessions.
5 Respondent has conceded that the corporation is entitled to
deduct certain disallowed corporate payments and to depreciate
certain other disallowed corporate payments. The corporation
also has conceded certain disallowed corporate payments.
Accordingly, the corporation seeks to deduct all remaining
disallowed corporate payments. See appendix.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011