SAFWAY STEEL SCAFFOLDS CO. OF GEORGIA, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee., 590 F.2d 1360

Summary

The two sole stockholders of a corporation received monthly payments under a lease of their property to their corporation. Plaintiff, the corporation, claimed a tax deduction under 26 U.S.C.S. § 162(a)(3), which was denied. Under 26 U.S.C.S. § 162(a)(3), a deduction was allowed for all ordinary and necessary expenses paid in carrying on any trade or business, including rentals. On appeal, plaintiff contended that the entire amount of a lease was deductible as rent. The court found that it was appropriate to inquire into the reasonableness of the rent paid because of the close relationship between the lessor and lessee. The court agreed with the finding that the payment attributable to the value of the improvements was in the nature of a non-deductible dividend and not a deductible rent expense. The court affirmed because the lower court properly applied the facts and made correct determinations of law.