- 5 -
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.
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011