Alicia Ruth, Inc. v. Commissioner of Internal Revenue

The corporate taxpayer appeals from a decision of the Tax Court (memoranda opinion 28 T.C. M 262) disallowing as a deduction the amounts paid as alleged compensation to a fifty percent stockholder. As all of the witnesses were interested financially in the outcome of the case and there were many circumstances, doubts and uncertainties about the arrangement under which the stockholder claimed he was serving the corporation by steering customers into this Miami Beach ladies shop, the trier of fact was entitled to conclude that the amount disbursed was not compensation. Consequently, disallowing…