UAL Corporation and Subsidiaries - Page 5




                                        - 5 -                                         
               United did not withhold Federal income tax on its payment of           
          the per diem allowances, and it neither withheld nor paid Federal           
          Insurance Contribution Act (FICA) tax with respect to the per               
          diem allowances.  United did not report the per diem allowances             
          as wages or nonwage compensation on the employees’ Forms W-2,               
          Wage and Tax Statement.                                                     
                                       OPINION                                        
               We must decide whether petitioner may deduct the per diem              
          allowances paid to the employees.  Petitioner argues it may                 
          deduct the per diem allowances as personal service compensation             
          because they arose out of an employer/employee relationship.                
          Respondent argues that petitioner may not deduct the per diem               
          allowances as personal service compensation because it lacked the           
          requisite compensatory intent at the time of payment.  We agree             
          with petitioner.                                                            
               Our inquiry begins with the relevant text.  Section 162(a)             
          lets a taxpayer deduct all ordinary and necessary expenses                  
          incurred during the taxable year in carrying on a trade or                  
          business.  Section 162(a)(1) includes within the ambit of section           
          162(a) “a reasonable allowance for salaries or other compensation           
          for personal services actually rendered”.  Payments are                     
          deductible under section 162(a)(1) to the extent they are                   
          “reasonable and * * * in fact payments purely for services.”                
          Sec. 1.162-7(a), Income Tax Regs.                                           






Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  Next

Last modified: May 25, 2011