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taxpayer is involved in the activity with continuity and
regularity and with the primary purpose of making a profit.
Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987). However,
the trade or business of a taxpayer is separate and distinct from
the trade or business of a corporation owned by that taxpayer.
Moline Props., Inc. v. Commissioner, 319 U.S. 436 (1943). The
Supreme Court has stated:
The doctrine of corporate entity fills a useful purpose
in business life. Whether the purpose be to gain an
advantage under the law of the state of incorporation or to
avoid or to comply with the demands of creditors or to serve
the creator’s personal or undisclosed convenience, so long
as that purpose is the equivalent of business activity or is
followed by the carrying on of business by the corporation,
the corporation remains a separate taxable entity. * * *
[Id. at 438-439; fn. refs. omitted.]
Because the corporation is a separate taxable entity, the
expenses paid or incurred in carrying on the trade or business of
the corporation are deductible by the corporation rather than by
its shareholders. Sec. 162(a); Moline Props., Inc. v.
Commissioner, supra; Deputy v. du Pont, 308 U.S. 488, 494 (1940);
Weigman v. Commissioner, 47 T.C. 596 (1967), affd. per curiam 400
F.2d 584 (9th Cir. 1968). This is so even where the shareholders
personally pay the ordinary and necessary expenses of the
corporation’s trade or business. Deputy v. du Pont, supra; Rand
v. Commissioner, 35 T.C. 956 (1961). In certain circumstances,
the corporate form may be disregarded where it is “a sham or
unreal”. Moline Props., Inc. v. Commissioner, supra at 439.
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Last modified: May 25, 2011