- 13 - computation of taxable income means that the disallowance of a deduction for a lease payment by the lessee-corporation has no impact on the lessor-shareholder's recognition of the lease payment as income. “There is no necessary correlation between the payor’s right to a deduction for a payment and the taxability of the payment to the recipient.” 1 Mertens, Law of Federal Taxation, sec. 5A.11, at 22 (1998 rev.); see also Smith v. Manning, 189 F.2d 345 (3d Cir. 1951); Sterno Sales Corp. v. United States, 170 Ct. Cl. 506, 345 F.2d 552 (1965); Reynard Corp. v. Commissioner, 30 B.T.A. 451 (1934); Mosby v. Commissioner, T.C. Memo. 1984-90; Zeunen Corp. v. United States, 227 F. Supp. 952 (E.D. Mich. 1964). This separate treatment of a payment’s deductibility and recognition as income obtains even where the payor and payee are a corporation and its sole shareholder, Reynard Corp. v. Commissioner, supra; Mosby v. Commissioner, supra; a parent corporation and its wholly owned subsidiary, Zeunen Corp. v. United States, supra; or two wholly owned subsidiaries of a common parent. Sterno Sales Corp. v. United States, supra. Petitioner has taxable income arising from two capacities, as leasing income from his individual activity of leasing boats and as a shareholder receiving the passthrough income of his S corporation conducting a law practice. Petitioner contends that the “tax benefit rule” provides the relief he seeks--that is, the exclusion of the boat lease incomePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
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