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Sec. 1.162-7(a), Income Tax Regs.; see also Nor-Cal Adjusters v.
Commissioner, 503 F.2d 359, 362 (9th Cir. 1974), affg. T.C. Memo.
1971-200.
B. Positions of the Parties
Respondent argues that petitioner’s deductions for
compensation paid to Mrs. Harrison during the audit years should
be reduced as follows:
Amount Amount Amount
TYE 6/30 deducted allowed disallowed
1995 $860,682 $54,215 $806,467
1996 818,059 56,040 762,019
1997 600,059 58,734 541,325
Respondent argues that the disallowed amounts are “unreasonable
and excessive compensation”. Respondent considers Mrs.
Harrison’s services equivalent to those provided by an outsider
serving as chair of a corporation’s board of directors, and the
amounts respondent allowed as reasonable compensation for the
audit years reflect respondent’s concession as to the amounts
properly attributable to those services. Respondent also argues
that the disallowed amounts were intended to be disguised
dividends to Mrs. Harrison rather than payments for services
rendered.2
2 Respondent’s “disguised dividend” argument is raised for
the first time on brief. Petitioner has not argued that the
introduction of that argument on brief constitutes the raising of
a “new matter” requiring respondent to bear the burden of proof
with respect to that matter. See Rule 142(a). Had petitioner
made that argument, we would have rejected it for the reasons set
(continued...)
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