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Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
Background
The single question before us is how much of the salary paid
by petitioner to Myra I. Harrison (Mrs. Harrison) and deducted by
petitioner on its Federal income tax returns for its 1995, 1996,
and 1997 taxable years (the audit years) was not reasonable in
amount and, therefore, not deductible as an ordinary and
necessary business expense. See sec. 162(a)(1); sec. 1.162-7(a),
Income Tax Regs. Petitioner, a California corporation, is in the
business of waste pickup and disposal. During the audit years,
Mrs. Harrison was a member of petitioner’s board of directors
(indeed, its chairman), an officer of petitioner (president), and
petitioner’s principal shareholder. Mrs. Harrison’s three sons
(Myron, James, and Ralph Harrison) were the remaining members of
the board and the only other officers of petitioner. For the
audit years, petitioner’s officers received, and petitioner
deducted, compensation in the following amounts:
Mrs.
Year Harrison Myron James Ralph
1995 $860,682 $479,773 $473,973 $459,673
1996 818,059 442,882 475,183 468,188
1997 600,059 338,436 377,849 360,391
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Last modified: May 25, 2011