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to section 162. The corporation bears the burden of proof. Rule
142(a).
Section 162(a)(1) allows as a deduction all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including "a reasonable
allowance for salaries or other compensation for personal
services actually rendered". To deduct payments as compensation
expenses pursuant to section 162, the taxpayer must establish
that the payments are: (1) Reasonable, and (2) intended to be
payments purely for services. Elliotts, Inc. v. Commissioner,
716 F.2d 1241, 1243 (9th Cir. 1983), revg. and remanding on
another issue T.C. Memo. 1980-282; Paula Constr. Co. v.
Commissioner, 58 T.C. 1055, 1058 (1972), affd. without published
opinion 474 F.2d 1345 (5th Cir. 1973); Electric & Neon, Inc. v.
Commissioner, 56 T.C. 1324, 1340 (1971), affd. without published
opinion 496 F.2d 876 (5th Cir. 1974); sec. 1.162-7(a), Income Tax
Regs. Whether the taxpayer has shown the requisite intent to
treat the payments as compensation is a factual question to be
decided on the basis of the particular facts and circumstances.
Electric & Neon, Inc. v. Commissioner, supra. "Where officer-
shareholders, who are in control of a corporation, set their own
compensation, careful scrutiny is required to determine whether
the alleged compensation is in fact a distribution of profits."
Home Interiors & Gifts, Inc. v. Commissioner, 73 T.C. 1142, 1156
(1980).
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