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Section 162(a) allows a deduction for all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal
services actually rendered. A deduction for salaries or other
compensation includes a deduction for corporate employment taxes.
Corporate employment taxes include the following: (1) The
employees’ Federal income taxes, secs. 3401 and 3402, (2) the
employees’ shares of Federal Insurance Contributions Act (FICA)
taxes, sec. 3101, (3) the employer’s share of FICA taxes, sec.
3111, and (4) employer’s Federal Unemployment Tax Act (FUTA)
taxes, sec. 3301. Employers are liable for deducting and
withholding from their employees’ salaries or wages the
employees’ shares of Federal income and FICA taxes. Secs.
162(a), 3102(a), 3402(a), 3403. In general, section 162 allows
petitioners’ corporations to deduct amounts paid as corporate
employment taxes (Federal income, FICA, and FUTA taxes).6 See
sec. 162(a); see also R.J. Nicoll Co. v. Commissioner, 59 T.C.
37, 45 (1972); sec. 1.164-2(a), (f), Income Tax Regs.; Rev. Rul.
80-164, 1980-1 C.B. 109. (Section 164 does not apply to the
employer’s payment of FICA and FUTA taxes.) The withheld Federal
6Federal income and FICA taxes withheld by an employer from
an employee’s remuneration are considered to be part of that
remuneration and deductible as such by the employer under sec.
162(a).
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