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Discussion
The parties agree that the value of the personal use of the
Falcon is reportable by the Recordses as compensation and that
petitioner is entitled to deduct some amount in connection with
that use. Respondent argues that the amounts of petitioner’s
deductions attributable to the personal use of the Falcon are
limited to the amounts reported as wages to the Recordses for
such use. Petitioner argues that the portion of petitioner’s
deduction attributable to the personal use of the Falcon is not
limited to the amounts reported as wages to the Recordses in
connection with the personal use.
Section 162(a) generally provides that a taxpayer may deduct
all ordinary and necessary expenses paid or incurred by the
taxpayer in carrying on a trade or business. An expenditure is
“ordinary and necessary” if it is directly connected with, or
proximately related to, the taxpayer’s trade or business
activities. Bingham’s Trust v. Commissioner, 325 U.S. 365, 370
(1945).
As an ordinary expense of carrying on a trade or business, a
taxpayer/employer may deduct expenses paid as compensation for
personal services. Sec. 162(a)(1). If the compensation is in
the form of a noncash fringe benefit, the employer may take a
deduction for expenses incurred in providing the benefit if the
value of the noncash fringe benefit is includable in the
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Last modified: May 25, 2011