Peter Showler - Page 10




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          business account.  Consequently, petitioner has substantiated the           
          payment of that expense to that extent.  Although the record is             
          not as complete as we would like concerning exactly to what                 
          the expense relates, it is clear that it is some form of                    
          compensation; and contrary to the explanation given in the notice           
          of deficiency for the disallowance of the deduction, nothing in             
          the record suggests that the compensation was not reasonable.               
          See sec. 162(a)(1).  It follows that the reasons given in the               
          notice of deficiency (unreasonable compensation and lack of                 
          substantiation) for the disallowance of the deduction have been             
          overcome by the evidence, or lack thereof, presented.                       
               Although it is not a ground listed in the notice of                    
          deficiency, respondent also argues that petitioner is not                   
          entitled to the deduction because the payments of the underlying            
          expenses in some manner or another violated various provisions of           
          the Securities Exchange Act of 1934 (the 1934 Act), ch. 404, 48             
          Stat. 881 (current version at 15 U.S.C. secs. 78a-78lll (2000)).            
          According to respondent, the expense to which the deduction                 
          relates is a nondeductible “illegal” payment within the meaning             
          of section 162(c)(2).  Respondent bears the burden of                       
          establishing by clear and convincing evidence that the expenses             
          to which the commission deduction relates constitute illegal                
          payments.  Secs. 162(c)(2), 7454(a); Rule 142(b).                           








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