Robert M. and Nancy I. Stewart - Page 5




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          allowance for salaries or other compensation for personal                   
          services actually rendered.  Deductions are a matter of                     
          legislative grace, and the burden of clearly showing the right to           
          any such deductions is on the taxpayer.4  INDOPCO, Inc. v.                  
          Commissioner, 503 U.S. 79, 84 (1992).                                       
               Respondent determined that the amounts paid to R.M. Stewart,           
          Inc., as “management fees” were not ordinary and necessary                  
          business expenses or were not expended for the purpose                      
          designated.5  Petitioners argue that the management fees were               
          ordinary and necessary expenses of Mr. Stewart’s real estate                
          business.  They contend that the type of services provided to the           
          real estate business involved “classic ordinary and necessary               
          business expenses” and that they were provided pursuant to a                
          binding and written contract.  Petitioners suggest that R.M.                
          Stewart, Inc., performed those services as a separate taxable               
          entity.                                                                     
               Ordinary expenses arise from transactions that are “of                 
          common or frequent occurrence in the type of business involved.”            
          Deputy v. DuPont, 308 U.S. 488, 495 (1940); ASAT, Inc. v.                   
          Commissioner, 108 T.C. 147, 174 (1997).  Necessary expenses are             

               4Respondent submits that the examination of petitioners’               
          1995 and 1996 returns began on Mar. 21, 1997.  Petitioners do not           
          raise an issue as to the application of sec. 7491, and we find              
          that Code section inapplicable to this case.                                
               5Respondent suggests that the fees were essentially capital            
          contributions from Mr. Stewart to the corporation.                          





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