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fiscal year ended July 31, 1994.
OPINION
Issue 1. Deduction for Compensation Not Paid by Petitioner
During Its Fiscal Year
Section 2671 requires the matching of deductions and income
between related taxpayers. It provides that the payor may not
deduct an obligation owing to a related payee until the related
payee would be required to recognize the income by reason of his
method of accounting. Sec. 267(a)(2).
Doyce Gentry is petitioner’s sole shareholder. Mr. Gentry
is therefore related to petitioner under section 267(a)(2)(B).
See sec. 267(b)(2). In addition, Doyce Gentry’s stock ownership
is attributed to his sons because they are his lineal
descendants. See sec. 267(b)(1), (c)(2), (c)(4). Doyce
Gentry’s sons therefore are also related to petitioner for
purposes of section 267(a)(2)(B).
Respondent denied petitioner’s deduction of $100,000 in
accrued compensation under section 267(a)(2) because petitioner
is an accrual method taxpayer, Doyce Gentry and his sons are
cash method taxpayers, and the compensation was not actually
paid by petitioner to the Gentrys by the close of petitioner’s
fiscal year on July 31, 1994.
1Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years at issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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