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1974), affg. T.C. Memo. 1971-200; Pac. Grains, Inc. v.
Commissioner, 399 F.2d 603, 606 (9th Cir. 1968), affg. T.C. Memo.
1967-7; Haffner’s Serv. Stations, Inc. v. Commissioner, T.C.
Memo. 2002-38, affd. 326 F.3d 1 (1st Cir. 2003); sec. 1.162-7(a),
Income Tax Regs. Petitioner conceded at trial that it must prove
that section 162(a)(1) allows it to deduct compensation in an
amount greater than that determined by respondent.6 See Rule
142(a)(1); see also LabelGraphics, Inc. v. Commissioner, supra at
1095. Careful scrutiny of the facts is appropriate in a case
such as this where the payor is controlled by a payee/employee.
Elliotts, Inc. v. Commissioner, supra at 1243; Paul E. Kummer
Realty Co. v. Commissioner, 511 F.2d 313, 315-316 (8th Cir.
1975), affg. T.C. Memo. 1974-44; Haffner’s Serv. Stations, Inc.
v. Commissioner, supra. We must be persuaded that the purported
compensation was paid for services rendered by the employee, as
opposed to a distribution of earnings to him that the payor could
not deduct. Mad Auto Wrecking, Inc. v. Commissioner, T.C. Memo.
1995-153 (and the cases cited therein).
Respondent argues in his brief that the disallowed
compensation was neither reasonable nor paid for Beiner’s
services. Respondent asserts that the disallowed compensation
represented funds that petitioner did not need for its operation
6 Given this concession, we conclude that sec. 7491(a),
which in certain circumstances places the burden of proof upon
the Commissioner, is not applicable here.
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