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expenses was to avoid the corporate income tax by converting
nondeductible dividends into deductible rental expenses.
Section 162(a)(3) allows as a deduction all ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including “rentals or other
payments required to be made as a condition to the continued use
or possession, for purposes of the trade or business, of
property”. In determining whether the payments here in issue
were rental payments deductible under this section, the “basic
question is * * * whether they were in fact rent instead of
something else paid under the guise of rent.” Place v.
Commissioner, 17 T.C. 199, 203 (1951), affd. per curiam 199 F.2d
373 (6th Cir. 1952). In connection with a lease between related
parties, the inquiry “requires a careful examination of the
circumstances surrounding the rental of the property to determine
the intentions of the parties in agreeing upon * * * [the] lease
and in fixing the terms thereof.” Davis v. Commissioner, 26 T.C.
49, 56 (1956). The question whether payments are rental payments
within the meaning of the statute is a question of fact to be
resolved on the basis of all the facts and circumstances. Thomas
v. Commissioner, 31 T.C. 1009, 1012 (1959); S. Ford Tractor Corp.
v. Commissioner, 29 T.C. 833, 842 (1958).
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