E.J. Harrison and Sons, Inc. - Page 15

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          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”.           





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