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of petitioner’s available net liquid assets and working capital
needs are set forth in the Appendix, together with annotations
discussing certain methodological issues on which we disagreed
with one or both of the parties.
Reserve for Legal Expenses
Petitioner contends that the various legal risks to which it
was exposed would have justified the accumulation of a reserve
for legal expenses equal to $250,000 for each of the taxable
years at issue. Respondent determined that no amounts were
allowable as accumulations for this purpose. We are satisfied
that respondent’s determination is correct.
Petitioner attempted to prove the extent of its need
attributable to the policy of providing legal representation to
employees and independent contractors subject to prosecution. We
do not question the reasonableness of the policy. The testimony
petitioner presented on this issue did not establish how much
petitioner expected to require for this purpose, however.
4(...continued)
is a question of fact on which petitioner has the burden of
proof. Rule 142; Smoot Sand & Gravel Corp. v. Commissioner,
241 F.2d 197, 207 (4th Cir. 1957), affg. in part T.C. Memo.
1956-82. We think petitioner is correct to question the
applicability to this case of a methodology developed for
nonservice businesses. See Myron’s Ballroom v. United States,
382 F. Supp. 582, 588 (C.D. Cal. 1974), revd. on other grounds
sub nom. Myron’s Enterprises v. United States, 548 F.2d 331 (9th
Cir. 1977); Simons-Eastern Co. v. United States, 354 F. Supp.
1003, 1007 (N.D. Ga. 1972). But petitioner has not suggested any
alternative. Therefore we shall use the parties’ Bardahl
calculations as the starting point for our analysis.
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