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* * * * * * *
Finally, there is no evidence in the record to
support petitioner’s contention that the disallowed
portion of the royalty fee should be treated as deduct-
ible compensation for services rendered. While I.R.C.
� 162(a)(1) allows a taxpayer to deduct compensation
paid, the taxpayer must establish that the parties
intended the payment to be compensation for services
rendered, and that the amount paid is reasonable. * * *
Here, since the payment was made pursuant to * * *
[petitioner’s] license agreement, it is clear that it
was not intended as compensation for the services Mr.
Ciarrocchi rendered as petitioner’s officer/employee
* * *.
In any event, petitioner has provided no evidence
to support the contention that it would be reasonable
to allow additional compensation exceeding the $108,000
Mr. Ciarrocchi received as salary and management fees
from petitioner for the services he performed as peti-
tioner’s officer and employee. If the balance [i.e.,
$461,266] of the royalty fee exceeding the amount
conceded by respondent is allowed as compensation, then
Mr. Ciarrocchi’s compensation for the taxable year
ended June 30, 2000 would be $569,266. * * * the record
contains no frame of reference from which to even begin
the analysis the courts engage in when determining
whether compensation is reasonable and, thus, deduct-
ible under � 162(a)(1). [Fn. ref. omitted.]
It is petitioner’s position that it is entitled to deduct
the entire $902,476 payment under petitioner’s license agreement,
and not just the $441,210 that respondent concedes. In support
of that position, petitioner asserts:
taxpayer [petitioner] is providing royalties to the person
[Mr. Ciarrocchi] who provided Italian recipes, and tradi-
tional family information, along with trade secrets and
methods in operating this type of restaurant. The amount
paid to Mr. Ciarrocchi by the taxpayer was and is reason-
able.
It is well established that for a payment to be
deductible, the payer must have intended the payment to
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