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expenses that are “appropriate and helpful” to a taxpayer’s trade
or business. Welch v. Helvering, 290 U.S. 111, 113 (1933); Boser
v. Commissioner, 77 T.C. 1124, 1132 (1981), affd. without
published opinion (9th Cir., Dec. 22, 1983). We agree with
petitioners that the general management services provided to the
real estate business were ordinary and necessary to that
business. We also agree that Mr. Stewart incorporated R.M.
Stewart, Inc., for legitimate business reasons and that it was a
separate taxable entity. See Moline Props., Inc. v.
Commissioner, 319 U.S. 436, 438-439 (1943). However, we disagree
that the payments to R.M. Stewart, Inc., were expenses paid for
management services performed by that entity or its employees.
As a general matter, the income and expenses of a sole
proprietorship are the income and expenses of the individual who
owns the business. See sec. 61(a)(2); LeBouef v. Commissioner,
T.C. Memo. 2001-261. The sole proprietorship, unlike the
corporation, was not a separate taxable entity from Mr. Stewart,
and any payments from that business that were paid for services
Mr. Stewart performed in his individual capacity are not
deductible. Thus, it is essential that the corporation in the
first instance, and not Mr. Stewart, be viewed as the party
providing the general management services.
Mr. Stewart was the individual who actually performed the
general management services for his sole proprietorship during
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