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Therefore, the payments are “three cornered”, and petitioner is
not entitled to a reduction from gross income. Alex v.
Commissioner, supra at 1224-1225.
Rebates may be allowable under section 162 as business
expenses if they are ordinary and necessary. The payments in
Alex v. Commissioner, supra, were not deductible because of the
prohibition against illegal deduction in section 162(c)(2). The
payments made by petitioner here were not “illegal” within the
meaning of section 162(c) and are ordinary and necessary expenses
incurred in petitioner’s trade or business of being an employee.
As to respondent’s argument that petitioner could have
sought reimbursement for rebate-like payments to Smith Barney
customers, the record does not support a conclusion that the
payments were reimbursable. Respondent’s arguments on this point
are internally inconsistent. Respondent, on one hand, points out
that the payment may have violated California law and/or the
rules of the New York Stock Exchange. On the other, respondent
contends that these payments would be reimbursable. The possible
impropriety of the payments would seem to dictate that such
amount would not be reimbursable. Further, it is obvious from
petitioner’s testimony, and we find on the record before us, that
the payments were not reimbursable.
Petitioner is entitled to deduct the amounts paid to JLB
Capital. The deduction however is not from gross income because
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