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employment taxes were paid out of, and as part of, the salaries
of the employees of petitioners’ corporations and were an
ordinary and necessary expense directly connected with the
businesses of petitioners’ corporations. The corporations’
shares of the corporate employment taxes were also ordinary and
necessary expenses directly connected with the businesses of
petitioners’ corporations. Petitioners’ corporations are legal
entities separate and distinct from petitioners. Petitioners’
corporations, not petitioners, were the taxpayers entitled to any
section 162(a) deduction for the corporate employment tax
payments.
Furthermore, the trade or business of a corporation is not
that of its shareholders; shareholders do not generally engage in
a trade or business when they invest in the stock of a
corporation. Whipple v. Commissioner, 373 U.S. 193, 202 (1963);
Betson v. Commissioner, 802 F.2d 365, 368 (9th Cir. 1986), affg.
T.C. Memo. 1984-264. A shareholder cannot convert a business
expense of his corporation into a business expense of his own
simply by agreeing to bear such an expense, Harding v.
Commissioner, T.C. Memo. 1970-179, or by failing to seek
reimbursement, Podems v. Commissioner, 24 T.C. 21 (1955).
Consequently, petitioners’ payments of the obligations of their
corporations are not ordinary and necessary as required by
section 162(a). See Deputy v. du Pont, supra; Betson v.
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