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argue, however, that such payments would not be deductible as
being illegal. See sec. 162(c)(2). Finally, respondent argued
that the payments are not deductible as a rebate or price
reduction because JLB Capital paid the commissions for its stock
purchases to Smith Barney under their customer-broker business
relationship.
The question we consider focuses upon whether petitioner is
entitled to reduce the gross commission income received from
Smith Barney or whether the payments he made to JLB Capital are
deductible as employee business itemized deductions from adjusted
gross income. We agree with respondent that in these
circumstances petitioner is not entitled to reduce gross income
by the payments made to JLB Capital. See Alex v. Commissioner,
70 T.C. 322 (1978), affd. 628 F.2d 1222 (9th Cir. 1980); see
also Pittsburgh Milk Co. v. Commissioner, 26 T.C. 707 (1956) (in
which such a reduction of income was permitted in a two-party
transaction). Here, petitioner is an agent or employee of Smith
Barney with whom JLB Capital and Bergman have contractual
relationships regarding stock trading and commissions. The
commissions received by petitioner in his role as a Smith Barney
employee and the payments made to JLB Capital are not reductions
or rebates of the customer’s commission payments to Smith Barney.
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