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earn a profit. Nevertheless, we allowed a deduction for
compensation to associates in excess of the amounts recorded as
attributable to patient services to reflect additional services
provided by the associates to the association. Because a portion
of the taxpayer’s profit was attributable to “ancillary hospital
service charges” that were not shown to be allocable to the
associates, we held that a portion of what the taxpayer treated
as compensation to the associates was, in fact, a nondeductible
distribution of profits. Richlands Med. Association does not
establish a rule of law that, in all circumstances, an employer
may deduct as compensation paid to an employee amounts collected
for services performed by such employee.
3. Relevant Inquiry
Section 1.162-7(b)(1), Income Tax Regs., states: “Any
amount paid in the form of compensation, but not in fact as the
purchase price of services, is not deductible.” The regulations
further provide that an ostensible salary may, if paid by a
corporation, be a distribution of a dividend on stock, or may be
in part a payment for property. See id. Petitioner must prove
its intent (i.e., the intent of the members of the board) to pay
compensation. See, e.g., Paula Constr. Co. v. Commissioner, 58
T.C. 1055, 1058 (1972), affd. per curiam 474 F.2d 1345 (5th Cir.
1973); Electric & Neon, Inc. v. Commissioner, 56 T.C. 1324, 1340
(1971), affd. without published opinion 496 F.2d 876 (5th Cir.
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