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Plentywood Drug, Inc. | April 26, 2021 | Holmes| Dkt. No. 17753-16
Short Summary: The Tax Court was asked to decide whether rent paid by the Taxpayer was reasonable. The Taxpayer was owned by four related individuals (the “Shareholders”). The Shareholders owned the building where the the Taxpayer was operating. The Taxpayer paid rent of $83,584, $192,000, and $192,000 for 2011, 2012 and 2013, respectively.
The IRS disallowed certain rent deductions by the Taxpayer to the Shareholders because the IRS stated that the rent paid by the Taxpayer was greater than what the fair market rent would have been paid at an arm’s length transaction. The IRS recharacterized the excess rent as dividends, therefore, the Taxpayer would not be able to deduct the dividends.