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Petitioner did not issue to any of these employees, or to
respondent, a Form W-2, Wage and Tax Statement, or a Form
1099-MISC, Miscellaneous Income, and none of these employees
included any of this compensation in his or her 1988 gross
income. Petitioner claimed a $1,078,672 deduction for the
transfer on its 1988 Federal income tax return. Petitioner filed
its 1988 return based on the calendar year.
Discussion
Respondent determined that petitioner could not deduct the
claimed amount because it failed to meet the requirements of
section 83.2 Petitioner must prove this determination wrong.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Petitioner also must prove its entitlement to the deduction.
Deductions are a matter of legislative grace. New Colonial Ice
Co. v. Helvering, 292 U.S. 435, 440 (1934).
Petitioner argues that section 83(h) and the underlying
regulations let it deduct the claimed amount in 1988 because
petitioner's employees were required to recognize the
corresponding income in that year. The fact that the employees
failed to recognize this income in 1988, petitioner argues, has
no bearing on its right to this deduction. Petitioner argues
that respondent's regulations are invalid to the extent that they
2 Respondent determined alternatively that petitioner
realized a $1,078,672 capital gain on its distribution of the
stock. Because we agree with respondent's primary position, we
do not address the alternative determination.
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