Robert M. and Nancy I. Stewart - Page 4




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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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