- 15 -
requirements of that provision as one of the prerequisites to
establishing that the burden of proof is on respondent. See
Edwards v. Commissioner, T.C. Memo. 2002-169; Cipriano v.
Commissioner, T.C. Memo. 2001-157, affd. 55 Fed. Appx. 104 (3d
Cir. 2003).
C. Conclusion
Because petitioner has failed to establish that it meets the
conditions for the applicability of section 7491, petitioner
bears the burden of proof. Rule 142(a).
II. Deductibility of Payments to Mrs. Harrison
A. Section 162(a)(1)
This case requires that we decide whether pursuant to
section 162(a)(1) petitioner can deduct amounts it paid to Mrs.
Harrison during the audit years. That section provides:
SEC. 162. TRADE OR BUSINESS EXPENSES
(a) In general.-–There shall be allowed as a
deduction all the ordinary and necessary expenses paid
or incurred during the taxable year in carrying on any
trade or business, including--
(1) a reasonable allowance for salaries or
other compensation for personal services actually
rendered;
Section 162(a)(1) establishes a two-pronged test for the
deductibility of amounts purportedly paid as salaries or other
compensation for personal services actually rendered (without
distinction, compensation for services): The payments must be
(1) “reasonable”, and (2) “in fact payments purely for services”.
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011