- 9 -
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).
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: March 27, 2008