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7491 was applicable nor established that they complied with the
statutory substantiation requirements of section 7491(a), as
shown below. Sec. 7491(a)(2)(A) and (B).
Business Expenses--Wages Paid to Children
Section 162(a)(1) provides that there shall be allowed as a
deduction all the ordinary and necessary expenses paid or
incurred during the taxable year in carrying on a trade or
business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered.
Section 1.162-7(a), Income Tax Regs. provides: “The test of
deductibility in the case of compensation payments is whether
they are reasonable and are in fact payments purely for
services.” See Elec. & Neon, Inc. v. Commissioner, 56 T.C. 1324,
1340 (1971), affd. without published opinion 496 F.2d 876 (5th
Cir. 1974). The question of whether amounts paid represent
reasonable compensation for services is one of fact determined
from all the facts and circumstances of the case. Charles
Schneider & Co. v. Commissioner, 500 F.2d 148, 151 (8th Cir.
1974), affg. T.C. Memo. 1973-130; Home Interiors & Gifts, Inc. v.
Commissioner, 73 T.C. 1142, 1155 (1980).
Deductions are a matter of legislative grace, and the
taxpayer bears the burden of proving that he or she is entitled
to any deduction claimed. Rule 142(a); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934). This includes the burden of
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