Utter-Mckinley Mortuaries, a Corporation v. Commissioner of Internal Revenue

Utter-McKinley Mortuaries, petitioner, is a corporation which has owned, leased and operated mortuaries from 1929 to date throughout the County of Los An-geles. The question here arises over the disallowance as a deduction of the amount of rent paid by it during the years 1944, 1945 and 1946 to Maytor H. McKinley who was its President and a Director and who owned seventy-five per cent of the stock of petitioner and who held legal title of all the balance of its stock in trust for a former wife. During the years 1943 and 1944, petitioner, desiring to expand into East Los Angeles, ne gotiated for the lease of a mortuary owned by Joseph A. Coleman and his wife. The negotiations were conducted through its President and his brother, Clarence H. McKinley, its Director and Vice-President. The Colemans were unwilling to lease to a corporation and insisted that the lease run to Maytor H. McKinley individually. Eventually, they sold to the latter the business, good will and certain personal property, and on February 11, 1944, leased the property to him as an individual for a five year term with three options to renew each for a five year term. The rental was $200.00 .a month, plus five per…