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2. WRI's Interest Expense
Respondent contends that WRI may not deduct $100,138 of
interest expense. An accrual basis taxpayer may only deduct
expenses or interest owed to a related cash basis taxpayer when
the amount involved is includable in the gross income of the cash
basis payee. Sec. 267(a)(2). WRI and Hersco are related
taxpayers. Sec. 267(b)(10); see sec. 267(e)(1). WRI uses the
accrual method of accounting; Hersco uses the cash method of
accounting. As we concluded at par. A-1, above, the interest
payments on the Hersco mortgage are not includable in Hersco's
gross income. Thus, the interest expense is not deductible on
WRI's fiscal year 1988 tax return. Sec. 267(a)(2). We agree
with respondent on this issue.
3. Bona Fide Sale
We need not decide whether the sale was bona fide. For
reasons discussed above at pars. A-1 and A-2, Hersco may not
include the payments in income, and WRI cannot deduct the
interest expense whether or not the sale was bona fide.
B. Wise's Management of WRI
1. Management Fees
Respondent contends that (a) WRI may not deduct management
and accounting fees of $173,974 for services performed by Pro-
Ser, and (b) Wise may not include $231,746 in gross income as
payment for those services. Based on application of the factors
that we considered in deciding Hersco did not constructively
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