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any reason why they would (or did) deal at arm’s length.2
Further, petitioner has failed to prove that the Dallas apartment
amount was a reasonable rental for the use that petitioner
obtained of the apartment.
In short, petitioner has failed to substantiate its claim
that 25 percent of the apartment was for business use. There is
no plan of the apartment in evidence showing any dedication of a
portion of the apartment to business use, nor did petitioner
testify as to such dedication. Moreover, the apartment was the
Duquettes’ home, and petitioner has failed to show that the
apartment was any larger than the Duquettes needed for domestic
purposes or that they were in any way discommoded on account of
Norman’s carrying out petitioner’s business on the premises.
Norman testified that a considerable amount of his work for
petitioner is done by telephone and fax, and that, in the
apartment, as in other places, he did research and wrote reports.
2 Congress has expressed skepticism that lease transactions
between employers and employees are negotiated at arm’s length:
Sec. 280A(c)(6) provides that no home office deduction is
allowable to an employee who leases a portion of his home to his
employer. The reports of the tax writing committees that
preceded the addition of sec. 280A(c)(6) to the Code state the
doubt of such committees that lease transactions between an
employer and employee are generally negotiated at arm’s length.
See H. Rept. 99-426 (1985), 1986-3 C.B. (Vol. 2) 1, 133–134; S.
Rept. 99-313 (1986), 1986-3 C.B. (Vol. 3) 1, 83. Both of those
reports accompanied H.R. 3838, 99th Cong., 1st Sess. (1985) (H.R.
3838). H.R. 3838 was enacted as the Tax Reform Act of 1986 (TRA
86), Pub. L. 99-514, 100 Stat. 2404. Sec. 280A(c)(6) constituted
sec. 143(b) of TRA 86.
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