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Table 4
1995 1996
Petitioner: Paid, deducted, and $762,186 $863,559
stands by tax returns
Respondent Allows:
Notice of deficiency 1 423,245 2465,800
After concessions 3 604,117 485,966
Court Finds: 610,000 630,000
1 In the notice of deficiency, respondent allowed a
deduction of $444,989 of the amount petitioner paid to both Jack
and Mary. Because respondent concedes that the entire $21,744
paid to Mary is deductible, this leaves $423,245 as the amount
petitioner paid to Jack that respondent determined to be
deductible.
2 In the notice of deficiency, respondent allowed a
deduction of $483,800 of the amount petitioner paid to both Jack
and Mary. Because respondent concedes that the entire $18,000
paid to Mary is deductible, this leaves $465,800 as the amount
petitioner paid to Jack that respondent determined to be
deductible.
3 This is the sum of $599,117, derived by Hakala’s
formulaic approach, plus “additional compensation of $5,000.00 to
Mr. Brewer for providing his personal guarantee to secure a
short-term working capital line of credit in 1995.” Infra
OPINION, C. Analysis, 1. Reasonableness, (d) Amount of Reasonable
Compensation, (2) Loan Guarantee.
Petitioner did not intend in 1995 and did not intend in 1996
to compensate Jack for his earlier services to petitioner.
OPINION
A. Parties’ Positions
Petitioner maintains that the amounts it paid to Jack as
compensation were reasonable in amount, within the meaning of
section 162(a)(1), and so these amounts are fully deductible.
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