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1985, however, at Elvin's direction, YOC's employees did not
attempt to sell the Capriole. The log and guest register
relating to the Capriole do not reflect any business use of the
Capriole. The Capriole was used by Elvin on numerous occasions
to entertain personal friends. Elvin invited guests to take
pleasure cruises aboard the Capriole. Elvin and his guests used
cocaine, marijuana, and alcohol during cruises aboard the
Capriole.
During 1984 and 1985, respectively, YOC paid $90,635 and
$133,179 in expenses for repairs, restoration, maintenance, and
operation of the Capriole, and YOC deducted these expenses as
business expenses. For 1983, 1984, and 1985, YOC did not claim
depreciation deductions relating to the Capriole.
In July of 1989, the Capriole was traded to an unrelated
party for real property located in Jackson County, North
Carolina. The stated sale price for the Capriole was $186,500.
The real property that was received in the exchange was treated
by YOC as an asset of YOC. The record does not reflect whether a
gain or loss was realized on this sale nor whether YOC reported
the sale on its 1989 corporate Federal income tax return.
The parties have stipulated that for 1984 and 1985 the fair
rental value for use of the Capriole was $1,200 per day.
On audit, respondent determined that YOC held only nominal
legal title to the Capriole and that Elvin was the owner of the
Capriole. Respondent determined that for 1984 the $80,000
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