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would not have otherwise been able to deduct. At the time that
these transactions were consummated, no party either advanced or
received any funds. Rather, the transactions occurred through
offsetting book entries. Furthermore, there is no evidence that
indicates whether a bona fide debt existed between TPC and Rose
prior to the occurrence of these transactions or whether TPC had
paid Rose any of the amounts that it owed to him, and we are
unpersuaded that the evidence establishes that SLPC paid Rose any
of the amounts that it owed to him after these transactions
occurred. Because these transactions did not leave Rose poorer
in a material sense when fully consummated, we conclude that Rose
did not make an actual economic outlay by engaging in them.
Accordingly, we sustain respondent’s determination that the Roses
had an insufficient basis in their SLPC interest during 1994 and
1995 to deduct the losses that they claimed from that
S corporation on their joint income tax returns for those years.
Issue #8–-Reasonable Compensation
Section 162(a)(1) allows as a deduction “a reasonable
allowance for salaries or other compensation for personal
services actually rendered”. The test for deductibility in the
case of compensation payments is whether they are reasonable and
are in fact payments purely for services. Sec. 1.162-7(a),
Income Tax Regs. In any event, the allowance for the
compensation paid may not exceed what is reasonable under all the
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