-5-
As to the issue that we do decide, petitioners assert that
the S corporations are entitled to deduct the daycare expenses of
petitioners’ children. Petitioners’ entire argument in brief is
as follows:
Pursuant to Rev. Rul. 73-348, 1973-2 C.B. 31, the
Respondent permits a corporation’s payments to a day
care center to provide care for the preschool children
of its employees while they are at work to be deducted
under IRC 162. Petitioner Sallyn Settimo could not
have worked unless day care was provided to her
preschool children. The Subchapter S Corporations paid
for that day care.
We are unpersuaded by this argument. While section 162 allows a
corporate taxpayer to deduct the ordinary and necessary expenses
of its business, the mere fact that petitioner’s wife may have
been unable to work for the S corporations unless daycare was
provided to her children does not necessarily mean that the
payment of petitioners’ daycare expenses is an ordinary and
necessary expense of the S corporations. While respondent ruled
in Rev. Rul. 73-348, supra, that a taxpayer was able to deduct
the daycare expenses related to the children of its employees,
the ruling notes that the expenses were “directly related” to the
taxpayer’s business. On the basis of the record at hand, we are
unable to find that petitioners’ daycare expenses were directly
related to the business of the S corporations or, in other words,
that those expenses are an ordinary and necessary expense of the
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