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oral leases can be used to claim rental deductions. See Lim v.
Commissioner, T.C. Memo. 1998-432; Wy’East Color, Inc. v.
Commissioner, T.C. Memo. 1996-136. The issue then becomes
whether this particular oral lease was merely a formality or had
real substance.
On this issue, we find that the lease did reflect reality.
One of its terms, remember, was that Monk would be responsible
for any repairs on the outside of the building while Maney would
be responsible for any repairs on the inside--the “swing-in,
swing-out” cost allocation. Rather than have Maney submit bills
to him for any external work done, Maney would pay for it up
front and subtract the amount paid from that month’s rent. We
find both Monk’s and Maney’s testimony credible on this point and
also find that this is in fact what happened. There is ample
evidence in the Dome Book that the insurance was split along the
same lines, with Maney paying Monk (in addition to the monthly
rent) that portion of the insurance attributable to the inside of
the premises. Both these practices show that the relationship
between Monk and Maney was that of landlord and tenant.
Even more telling, however, is that Monk’s financial
interest--which consisted primarily of his monthly rent payment--
wasn’t tied to the profits or losses of Chuck’s Place. In
University Hill Foundation v. Commissioner, 51 T.C. 548, 568-69
(1969), revd. on other grounds 446 F.2d 701 (9th Cir. 1971), we
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