- 17 -
1973)). The question of whether payments were made with an
intent to compensate is a question of fact, bearing in mind that
transactions between closely held corporations and their
stockholders are examined with close scrutiny. See Paula Constr.
Co. v. Commissioner, supra at 1058-1059. The requisite intent
must have existed when the purported compensation payment was
made. See id. at 1059-1060. In the instant case, Neal, the
other 50-percent shareholder, did not even know about the scrap
metal sales until August 1992, well after John had received the
payments, for which Simco claims a compensation deduction. The
contemporaneous corporate records obviously did not record the
amounts as compensation because the amounts were not recorded at
all. It was only after Neal learned about the scrap metal sales
that the proceeds therefrom were recorded and characterized in
the amended returns as compensation. There was no intent to
compensate when John actually received the payments. See Tool
Producers, Inc. v. Commissioner, T.C. Memo. 1995-407, affd. per
curiam without published opinion 97 F.3d 1452 (6th Cir. 1996).
Therefore, we hold that petitioner Simco is not entitled to the
claimed deduction for compensation.
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