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for a “Real Estate & Mortgage Rate Market Fee” paid to Crestmark.
Respondent disallowed the deduction in its entirety.
On June 23, 1995, Crestmark untimely filed its Short-Form
Income Tax Return for its fiscal year ending July 31, 1994. On
its late-filed return, Crestmark reported the November 1993
deposit of $102,955 as its sole gross receipts for the year. It
reported no compensation of officers, no salaries, and no wages.
On its return, Crestmark deducted $9,509 in business expenses for
the year. The claimed expenses consisted of $2,600 for taxes and
licenses, $1,267 for interest, $2,286 for depreciation and $3,356
for other deductions that included sums paid for meals,
petitioners’ country club dues, and improvements to petitioners’
residence at Lake Kiowa, Texas, such as a room addition, garage,
and landscaping. Respondent disallowed the claimed business
deductions in their entirety.
Discussion
Petitioners’ Deduction for Amounts “Paid” to Crestmark
Section 162(a)(1) allows as a deduction all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including “a reasonable
allowance for salaries or other compensation for personal
services actually rendered.” The test of deductibility for
compensation payments is “whether they are reasonable and are in
fact payments purely for services.” Sec. 1.162-7(a), Income Tax
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