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Pursuant to a method or arrangement between Clarkston, the
service recipient/payor, and J.D., the service provider, the
former did not pay the latter for its services within 2-1/2
months after the close of the respective calendar years in which
the services were performed.4 Nor have petitioners made the
requisite showing to rebut the presumption that Clarkston’s
arrangement with J.D. as to its services did not defer the
receipt of compensation within the meaning of section 404(a).
We sustain respondent’s determination that the fees are not
deductible in the years claimed by petitioners. See generally
Rev. Rul. 88-68, 1988-2 C.B. 117. In so doing, we emphasize that
this holding rests on our finding that Clarkson and J.D., whose
transactions with each other are subject to particular scrutiny
because the two entities are related, had a method or arrangement
between them which in substance deferred the receipt of
compensation by a service provider.
To reflect concessions,
Decision will be entered
under Rule 155.
4 Petitioners appropriately make no claim that the fees were
paid under sec. 404 through the issuance of the intercompany
note. See Don E. Williams Co. v. Commissioner, 429 U.S. 569,
581-582 (1977) (provision of a note does not constitute payment
for purposes of sec. 404(a)).
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Last modified: May 25, 2011