- 15 -
1993, respectively. According to respondent, it was not
reasonable for Wysong Medical to pay such portions of the rent.
Third, respondent argues that Wysong Medical's payments to Wysong
Corp. were made as a means of shifting income with the end effect
being a decrease in the amount of flow-through income from Wysong
Medical, an S corporation, to its sole shareholder Dr. Wysong.
We are not satisfied that the amount of rent paid by Wysong
Medical was reasonable, in other words, that a lessee in an
arm's-length transaction with an unrelated party would have paid
the amount of rent that Wysong Medical was required to pay under
the lease agreements. We reject petitioners' argument that the
corporations' proportionally similar income and losses for the
years in issue demonstrates that there was no improper shifting
of income and that the amount of rent paid by Wysong Medical was
reasonable. We believe that the relevant inquiry focuses not
only on the effect that these deductions had on the two
corporations but also on the effect that the deductions had on
the S corporation's sole shareholder, Dr. Wysong.
Furthermore, we find that Wysong Medical's rent payments
were not reasonable in relation to the corporations' business
activities. In 1992 and 1993, Wysong Corp. had gross income in
the amounts of $2,436,888 and $2,666,759, respectively, and made
rent payments to petitioners in the amounts of $132,842 and
$131,520. The rent payments were approximately 5.5 percent and
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