Elliot Pisem and David E. Kahen 'Management Fee' Deductions Disallowed: 'Aspro v. Commissioner'
In this edition of their Taxation column, David E. Kahen and Elliot Pisem discuss a recent Tax Court decision disallowing deductions for purported management fees paid by a closely held corporation to its shareholders, in which the court concluded that the payments were disguised dividends and that the petitioner failed to establish that the payments were reasonable in relation to services rendered.
April 14, 2021 at 12:30 PM
8 minute read
The label assigned to a payment may not be respected in determining U.S. income tax consequences, if, based on the surrounding facts and circumstances, the label is inconsistent with the substance. Aspro v. Commissioner (TC Memo 2021-8) illustrates how application of this principle can result in disallowance of claimed deductions (in that case, for millions of dollars of management fees) and underscores issues that should be considered in designing arrangements to compensate enterprise owners or related parties for their services.
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