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Drywall, and, if deductible, could only be deducted by Drywall.
Because we agree with respondent on this point, we need not
address the controversy between the parties as to whether the
lease cancellation fee should be considered to have been paid by
petitioner or Mr. Finley.
A corporation formed for legitimate business purposes is an
entity separate from its shareholders. See Moline Properties,
Inc. v. Commissioner, 319 U.S. 436 (1943). Furthermore, the
business of a corporation is separate and distinct from the
business of its shareholders. See id.; Deputy v. du Pont, 308
U.S. 488, 494 (1940); Crook v. Commissioner, 80 T.C. 27, 33
(1983), affd. without published opinion 747 F.2d 1463 (5th Cir.
1984). Consequently, a shareholder generally is not entitled to
a deduction for the payment of corporate expenses. See Deputy v.
du Pont, supra; Hewett v. Commissioner, 47 T.C. 483 (1967).
Petitioner agrees with these general legal principles but argues
that the principles do not apply because Drywall's existence
should be disregarded for Federal income tax purposes. According
to petitioner, Drywall did not take sufficient, if any, action to
further its corporate business purpose. We disagree.
A corporation will be recognized for Federal income tax
purposes as a taxable entity separate from its shareholders if
(1) the purpose of incorporation was the equivalent of business
activity, or (2) the corporation carried on business after
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