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2. Intent
Because of the comparatively subjective nature of the
determination of a taxpayer’s intent in making a payment to a
shareholder-employee, courts have generally concentrated on the
reasonableness prong rather than the intent prong in section
162(a)(2) cases. See, e.g., Elliotts Inc. v. Commissioner, 716
F.2d 1241, 1243 (9th Cir. 1983), revg. T.C. Memo. 1980-282.
However, it is clear that if a payment was not intended to be
compensation for personal services, then it will not be
deductible under section 162(a)(2) even if the payment did not
exceed reasonable compensation. See King’s Court Mobile Home
Park v. Commissioner, 98 T.C. at 514-515; Paula Construction Co.
v. Commissioner, 58 T.C. at 1057, 1059-1060.
Having made determinations as to the maximum amounts of
petitioner’s payments to Jack that would be reasonable
compensation for Jack’s services, we now proceed to the second
prong--whether any portions of those reasonable amounts are
nevertheless not deductible by petitioner because they were not
intended as compensation.
Respondent contends “that part of the payments [to Jack]
deducted by petitioner are disguised dividends.” In support of
this contention, respondent directs our attention to the
following: (1) Jack’s testimony that if petitioner had a good
year, then Jack had a good year, (2) the yearend ad hoc
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