- 74 -
As also discussed supra in connection with Issue 1,
petitioners failed to substantiate OGT 90's alleged acquisition
of 1,301 breeding sheep during 1990. Accordingly, we hold that
OGT 90 is not entitled to the farm deductions it claimed
for 1991.
Issue 4. Deductions for Guaranteed Payments
Petitioners assert that RCR #4, RCR #6, and OGT 90 each are
entitled to deductions for the years in issue for certain
guaranteed payments each partnership made to Mr. Hoyt during
those years.
Section 707(c) allows a deduction to a partnership for
guaranteed payments to partners. Such payments are determined
without regard to the partnership income and are payments to a
partner for services or the use of capital. See sec. 707(c). To
be deductible by the partnership, the guaranteed payments must
meet the requirements of section 162(a); they must be ordinary
and necessary expenses, reasonable in amount, and incurred in a
trade or business. See Durkin v. Commissioner, 87 T.C. 1329,
1388 (1986), affd. on other issues 872 F.2d 1271 (7th Cir. 1989);
sec. 1.707-1(c), Income Tax Regs.
In deciding whether the payments are deductible under
section 162(a), the Court must look to the nature of the services
performed by the general partners rather than to their
designation or treatment by the partnership. See Durkin v.
Commissioner, supra at 1388-1389. Payments allocable to
organizational costs and syndication expenses must be
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