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necessary if it is appropriate and helpful for the development of
the business. See Commissioner v. Heininger, 320 U.S. 467, 471
(1943).
A taxpayer may deduct payments for compensation if the
amount paid is reasonable and for services actually rendered for
the payor in or before the year of payment. See sec. 162(a)(1);
Lucas v. Ox Fibre Brush Co., 281 U.S. 115, 119 (1930). The
reasonableness of compensation is a question of fact that must be
answered by comparing each employee’s compensation with the value
of services that he or she performed in return. See RTS Inv.
Corp. v. Commissioner, 877 F.2d 647, 650 (8th Cir. 1989), affg.
per curiam T.C. Memo. 1987-98; Charles Schneider & Co. v.
Commissioner, 500 F.2d 148, 151 (8th Cir. 1974), affg. T.C. Memo.
1973-130; Estate of Wallace v. Commissioner, 95 T.C. 525, 553
(1990), affd. 965 F.2d 1038 (11th Cir. 1992).
Generally, payments are deductible if they are made with an
intent to compensate. Paula Constr. Co. v. Commissioner, 58 T.C.
1055, 1058 (1972), affd. 474 F.2d 1345 (5th Cir. 1973); see also
UAL Corp. v. Commissioner, 117 T.C. 7, 10 (2001); Elec. & Neon,
Inc. v. Commissioner, 56 T.C. 1324, 1340 (1971). “Whether such
intent has been demonstrated is a factual question to be decided
on the basis of the particular facts and circumstances of the
case.” Paula Constr. Co. v. Commissioner, supra.
1. Purchases Made by Ms. Novak-O’Farrell
Petitioner argues that the purchases made by Ms. Novak-
O’Farrell were additional compensation to her. We disagree.
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