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During the fiscal years ending May 31, 1989 and 1990, Powertex
claimed depreciation deductions on its Federal corporate income tax
returns for a desk, chair, and other standard office furniture
located at 255 Beverly Avenue. Powertex also paid the Podds'
worldwide travel and entertainment expenses. Plus paid the
following wages in Canadian dollars:
Year Mr. Podd Mrs. Podd Victor, Jr. Stephen
1988 $70,000 $60,000 $35,000 $35,000
1989 61,525 61,525 49,215 49,215
1990 100,000 100,000 25,000 25,000
OPINION
In the notices of deficiency, respondent adjusted the income of
Powertex by disallowing the deductions claimed for management fees
paid to Plus for the fiscal years ending in 1988 through 1990.
Respondent determined that such amounts were neither ordinary and
necessary business expenses nor expended for the purpose designated.
Deductions are a matter of legislative grace, and a taxpayer
seeking a deduction must meet every condition that Congress has
imposed for entitlement to the deduction claimed. New Colonial Ice
Co. v. Helvering, 292 U.S. at 440. Section 162 generally allows a
deduction for ordinary and necessary expenses paid or incurred
during the taxable year in carrying on a trade or business. The
determination of whether an expenditure satisfies the requirements
of deductibility under section 162 is a question of fact to be
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