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Petitioner stated that Michael McKinney (Mr. McKinney), whom
petitioner referred to as his son, maintained records of how many
weeks each helper worked so that each could be paid.
Melvin Burrell (Mr. Burrell), identified at trial as
petitioner’s other son, worked in petitioner’s tile business for
at least 15 years. Petitioner and Mr. Burrell each testified as
to the following distribution of cash among petitioner and his
crew in 2001:
Recipient Payment
Petitioner $8,000
Michael McKinney 8,000
Melvin Burrell 4,500
Arthur Edwards 4,500
Jeff Robinson 800
Berian Justice 800
Total cash distributed 26,600
Total paid to workers 18,600
Mr. Burrell claimed that he worked for petitioner for the
entire year 2001, working a standard 8 hours per day, 5 days a
week. Mr. Burrell did not report the $4,500 he claims petitioner
paid him in 2001 or file a tax return for 2001. Mr. Burrell
testified that he did not file a 2001 tax return because he did
not receive a Form 1099-MISC from petitioner.
Compensation is deductible as a trade or business expense
only if it is (1) reasonable in amount, (2) based on services
actually rendered, and (3) paid or incurred. See O’Connor v.
Commissioner, T.C. Memo. 1986-444; sec. 1.162-7(a), Income Tax
Regs.
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