Michael D. and Christine R. Alexander - Page 15

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          basis for estimating the amount of the expense.  Vanicek v.                 
          Commissioner, 85 T.C. 731, 742-743 (1985); Keenan v.                        
          Commissioner, T.C. Memo. 2006-45.  Here, the record does not                
          provide a reasonable basis for estimating the portion of Steven’s           
          compensation, if any, that is deductible.  We therefore do not              
          apply the Cohan rule.                                                       
               On the basis of all of the facts and circumstances, we                 
          conclude that the payments to Steven represent personal, living,            
          or family expenses.  See sec. 262(a).  The tasks that Steven                
          performed are mostly in the nature of routine family chores.                
          Petitioners predetermined the amount they would pay him and                 
          failed to observe the formalities of the employee-employer                  
          relationship, such as paying employment taxes, filing information           
          returns, and paying Steven promptly for the hours he worked.                
          Thus, petitioners cannot deduct the payments to Steven as wage              
          expense.  Respondent’s determination is sustained.                          
          3.   Payments to Petitioners’ Daughters                                     
               Petitioners’ daughters were under 18 years old in 1998.                
          Petitioners therefore were not required to pay employment taxes             
          on their earnings or file Forms 940 and 941.  See secs.                     
          3121(b)(3)(A), 3306(c)(5).  Petitioners were required, however,             
          to issue their daughters Forms W-2.  See sec. 1.6041-2(a)(1),               
          Income Tax Regs.  Petitioners’ failure to do so undercuts their             
          assertion that their daughters were bona fide employees of the              

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