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Schedule C attached to his Forms 1040, U.S. Individual Income Tax
Return, for each tax year. Notwithstanding petitioner’s 1997
rent payments, the Sherman Oaks Property was vacant during this
entire year.
Petitioner’s mother reported the payments received from
petitioner as rental income on her 1994 and 1997 tax returns. In
1994, despite $52,000 in rent receipts from petitioner,
petitioner’s mother had zero taxable income after deductions. In
1997, petitioner’s mother had taxable income of $56,778 and was
in the 28-percent tax rate bracket.
During 1994 and 1995, petitioner’s brother filed three
business name registrations in the State of California, each
designating the Sherman Oaks Property as the place of business.
One of the filings, that of Great Western Kingdom, specifically
designated suite B of the Sherman Oaks Property as the company’s
place of business. In 1994, petitioner paid his brother $36,000
in nonemployee compensation, which petitioner reported using a
Form 1099-MISC, Miscellaneous Income, and petitioner’s brother
reported on his Schedule C as gross receipts from Great Western
Kingdom.
OPINION
The question we consider is whether petitioner is entitled
to deduct the Sherman Oaks Property rent payments (rent payments)
made to his mother as ordinary and necessary business expenses
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Last modified: May 25, 2011