Randy L. and Julie J. Wysong - Page 7

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          Based on these amounts, respondent determined that reasonable               
          amounts for Wysong Medical to pay for the use and occupancy of              
          the leased property were $6,500 and $3,250 in 1992 and 1993,                
          respectively.                                                               
                                       OPINION                                        
               We must decide whether amounts paid as rent by Wysong                  
          Medical to Wysong Corp. represented ordinary and necessary                  
          expenditures under section 162(a)(3).  Deductions are a matter of           
          legislative grace, and petitioners bear the burden of showing               
          that they are entitled to the deductions claimed.  Rule 142(a);             
          New Colonial Ice Co. v. Helvering, 292 U.S. 435 (1934).                     
               Section 162(a)(3) allows a deduction for all ordinary and              
          necessary business expenses, including rent required to be paid             
          as a condition for the use of property.3  Inherent in the phrase            
          "ordinary and necessary" is an element of reasonableness, and,              
          where the lessor and lessee are closely related and there is no             
          arm's-length dealing between them, an inquiry into what                     
          constitutes reasonable rent is necessary to determine whether the           
          sums paid exceed what the lessee would have paid in an arm's-               


               3  Sec. 162(a)(3) provides that "There shall be allowed as a           
          deduction all the ordinary and necessary expenses paid or                   
          incurred during the taxable year in carrying on any trade or                
          business, including * * * rentals or other payments required to             
          be made as a condition to the continued use or possession, for              
          purposes of the trade or business, of property to which the                 
          taxpayer has not taken or is not taking title or in which he has            
          no equity."                                                                 




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