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The general management of the sole proprietorship consisted
of running the company, overseeing the training of the managers,
overseeing the sales manager, overseeing accounts receivable and
accounts payable, motivating agents, and reviewing contracts for
residences and businesses. Mr. Stewart performed the general
management functions for the sole proprietorship in 1995 and
1996. There was no written agreement between the corporation and
Mr. Stewart regarding any services he was to provide as an
employee of the corporation.
Mr. Stewart paid $120,000 in 1995, and $100,000 in 1996, to
R.M. Stewart, Inc., as fees for the general management services.
Petitioners filed Forms 1040, U.S. Individual Income Tax Return,
in 1995 and 1996, in which they deducted those payments on
Schedules C, Profit or (Loss) from Business or Profession,
attached to those returns. The corporation reported those
amounts as income on its Forms 1120, U.S. Corporation Income Tax
Return, for 1995 and 1996. This income allowed the corporation
to absorb losses arising from deductions claimed on its 1995 and
1996 returns. Mr. Stewart received no compensation or draws from
the corporation in 1995 and 1996.
OPINION
Section 162(a) allows as a deduction all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business including a reasonable
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