- 20 -
The compensation issue focuses on section 162(a)(1).10 A
payment of compensation is deductible under that section if it is
reasonable in amount and for services actually rendered to the
payor in or before the year of payment. Lucas v. Ox Fibre Brush
Co., 281 U.S. 115, 119 (1930); Charles Schneider & Co. v.
Commissioner, 500 F.2d 148, 151 (8th Cir. 1974), affg. T.C. Memo.
1973-130; Pac. Grains, Inc. v. Commissioner, 399 F.2d 603, 606
(9th Cir. 1968), affg. T.C. Memo. 1967-7; Estate of Wallace v.
Commissioner, 95 T.C. 525, 553-554 (1990), affd. 965 F.2d 1038
(11th Cir. 1992); sec. 1.162-7(a), Income Tax Regs. Petitioner
must prove that section 162(a)(1) allows it to deduct
compensation in an amount greater than that determined by
respondent. Rule 142(a)(1). Careful scrutiny of the facts is
appropriate in a case such as this where the payor is controlled
by a payee/employee. Paul E. Kummer Realty Co. v. Commissioner,
511 F.2d 313, 315-316 (8th Cir. 1975), affg. T.C. Memo. 1974-44;
Charles Schneider & Co. v. Commissioner, supra at 152-153;
Law Offices-Richard Ashare, P.C. v. Commissioner, T.C. Memo.
10 That section provides:
SEC. 162(a). In General.--There shall be allowed
as a deduction all the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on
any trade or business, including--
(1) a reasonable allowance for salaries
or other compensation for personal services
actually rendered;
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011