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OPINION
A. Ordinary and Necessary Business Expense
The question we consider is whether petitioner is entitled
to deduct the $30,000 that petitioner paid to petitioner’s father
as an ordinary and necessary business expense under section 162.
Section 162(a) allows a deduction for “all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business”.
The question as to whether an expenditure satisfies the
requirements of section 162 is one of fact. Commissioner v.
Heininger, 320 U.S. 467 (1943). “Intrafamily transactions
resulting in the distribution of income within a family unit are
subject to the closest scrutiny.” Van Zandt v. Commissioner, 40
T.C. 824, 830 (1963) (citing Commissioner v. Tower, 327 U.S. 280
(1946)), affd. 341 F.2d 440 (5th Cir. 1965); see Helvering v.
Clifford, 309 U.S. 331 (1940).
Petitioner maintains that the $30,000 was a consulting fee
payment made as part of an oral agreement between petitioner and
his father in 1996. Petitioner argues that he established a
business to sell interests in U.S. real estate investments to
Asian investors. He further argues that the $30,000 check paid
to his father in 1996 was deductible on petitioner’s Schedule C,
Profit or Loss From Business, as an ordinary and necessary
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Last modified: May 25, 2011