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393 U.S. 297, 307 (1969); Technalysis Corp. v. Commissioner,
101 T.C. 397, 403 (1993).
Respondent contends that there was a reasonable basis in
fact for the position in the notice of deficiency and the answer
because respondent knew the following facts before issuing the
notice of deficiency: (i) Petitioner had passive assets such
as certificates of deposit; (ii) petitioner had investments
unrelated to its oil and gas operations; (iii) petitioner had a
steady cash-flow from film rights; (iv) petitioner paid Arnold
Saltzman a $30,000 dividend in 1989; and (v) petitioner paid
management fees to Arnold Saltzman. We do not believe that these
facts provide a reasonable basis in fact for respondent's
position. Respondent does not state the amounts of petitioner's
liquid assets. Respondent alleged in the answer that petitioner
had accumulated liquid assets worth more than $500,000 in each
year in issue. Respondent might have been referring to amounts
in petitioner's Federal corporate tax returns for the years in
issue. Petitioner reported "other investments" of $748,771 on
its tax returns for 1987, $779,913 for 1988, and $729,419 for
1989. However, the only way to know if these amounts are
excessive is to compare them to petitioner's business plans.
Respondent lacked a basis in fact for applying the accumulated
earnings tax because respondent had no facts about petitioner's
business plans.
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