Michael D. and Christine R. Alexander - Page 16

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          dog-breeding business.  See Haeder v. Commissioner, T.C. Memo.              
          2001-7 (taxpayer’s failure to issue wife a Form W-2 militated               
          against the deductibility of payments to her); see also Martens             
          v. Commissioner, T.C. Memo. 1990-42, affd. 934 F.2d 319 (4th Cir.           
               On the issue of how the daughters’ compensation was                    
          determined, Mrs. Alexander’s testimony was inconsistent.  She               
          initially testified that petitioners predetermined they could pay           
          each daughter approximately $4,250 for the year.  She later                 
          testified, however, that petitioners paid each daughter $7 an               
          hour.  It is difficult to believe that each daughter earned                 
          exactly $4,250 for the year unless that amount was predetermined.           
          Furthermore, we note that $4,250 was the amount of the standard             
          deduction in 1998.  See sec. 63(c); Rev. Proc. 97-57, sec. 3.04,            
          1997-2 C.B. 584, 586.  As a result, each daughter could earn up             
          to $4,250 without having to pay Federal income tax.  We conclude            
          that petitioners paid their daughters a flat amount that was                
          determined at the beginning of the year, rather than an hourly              
          rate.  This fact weighs against the deductibility of the                    
          payments.  See Furmanski v. Commissioner, T.C. Memo. 1974-47.               
               As mentioned supra, the daughters generally did not receive            
          cash from petitioners.  In addition, the daughters received                 
          advances when they needed to make purchases.  We have held that             
          similar arrangements indicate a lack of correlation between the             

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