Patrick E. Catalano - Page 10

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          boat lease transactions that subjected him to the same kind of              
          double taxation that is the basis for his complaint herein.  On             
          such returns, petitioner's corporation deducted only 80 percent             
          of the lease payments it made to him (as required by section                
          274(n)), whereas petitioner reported as income on his individual            
          return 100 percent of the lease payments, albeit reduced by the             
          expense deductions associated with providing the boats.  Thus, to           
          the extent of 20 percent of the lease payments, there was no                
          reduction in the passthrough income from his corporation to                 
          offset the lease income he reported in his individual capacity as           
          a lessor.  Apparently petitioner structured the transaction to              
          produce, and was willing to accept, such double inclusion of                
          income so long as its magnitude was exceeded by the otherwise               
          unallowable deductions for the costs associated with the boats              
          that he was able to deduct as a lessor.                                     
               We believe petitioner's argument fails to take into account            
          two basic principles.  First, the separate existence of                     
          corporations is firmly established under the tax law.  Moline               
          Properties, Inc. v. Commissioner, 319 U.S. 436 (1943).  Second,             
          the business of a corporation--including that of an S                       
          corporation--is separate and distinct from that of its                      
          shareholders.  Deputy v. duPont, 308 U.S. 488, 494 (1940);                  
          Durando v. United States, 70 F.3d 548, 551-552 n.9 (9th Cir.                
          1995); see Crook v. Commissioner, 80 T.C. 27, 32 (1983), affd.              

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