- 14 -
characterize payments as loan repayments), affg. T.C. Memo. 1965-
84.
Petitioners alternatively argue that the payments should be
treated as additional compensation. Whether amounts are paid as
compensation turns on the factual determination of whether the
payor intends at the time that the payment is made to compensate
the recipient for services performed. See Neonatology
Associates, P.A. v. Commissioner, 115 T.C. 43, 92 (2000), affd.
299 F.3d 221 (3d Cir. 2002). The fact that petitioners now
choose to characterize the payments by RAF of the Lenzens’
personal expenses as compensation does not establish that the
payments were compensation in fact. See King’s Court Mobile Home
Park, Inc. v. Commissioner, 98 T.C. 511, 514 (1992).
The facts of this case do not support petitioners’ assertion
that RAF intended the payments of the Lenzens’ personal expenses
to be additional compensation. Petitioners did not characterize
the payments as compensation on their 1999 income tax returns and
have not since filed amended returns correcting the
characterization. Mrs. Lenzen was not an employee of RAF in
1999. In addition, no evidence is in the record regarding
whether Mr. Lenzen’s compensation, with or without the payments
by RAF, was reasonable in 1999. The reasonableness of
compensation is an essential element in resolving compensation
versus dividend issues. See id. at 515. The payments by RAF of
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011