Lockwood Realty Company, Petitioner, v. Commissioner of Internal Revenue, Respondent, 264 F.2d 241 (6th Cir. 1959)

This tax review has been heard and considered on the record and on the oral arguments and briefs of the attorneys.

We hold that the Tax Court correctly disallowed a deduction for alleged "interest expense" for each of the three taxable years in issue. This conclusion has been reached upon the basis of the Tax Court's findings of fact, which are supported by substantial evidence and are not clearly erroneous. T. C. Memo. 1958-49 (March 31, 1958); Gooding Amusement Co. v. Commissioner, 6 Cir., 236 F.2d 159, certiorari denied 352 U.S. 1031, 77 S. Ct. 595, 1 L. Ed. 2d 599.

The Tax Court was in error, however, we think, in disallowing the deduction by the petitioner of Six Thousand Dollars during each of the years in issue as "management fees" to two of its officers, Rabkin and Itkoff, and in substituting its own conclusion that Four Thousand Dollars per annum was adequate compensation for the two officers. There was sufficient evidence of record to justify the compensation claimed by Rabkin and Itkoff; and the respondent Commissioner offered no contradictory evidence. We consider the action of the Tax Court to be arbitrary and clearly erroneous. The deduction of Six Thousand Dollars per annum as compensation or salaries to the officers is accordingly allowed.

The decision of the Tax Court is reversed in part, as indicated herein; and the cause is remanded to the court for further proceedings in conformity with this opinion.