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Hagerman testified regarding petitioner’s representation of the
six dancers in 1988. She was asked how much she anticipated
their representation would cost at the time of their arrest. She
replied: “At the time I thought around $20,000 apiece if each
one had their own attorney if they didn’t want us to represent--
the corporation to represent them.” When asked whether she meant
that petitioner was prepared to pay this amount, she confirmed
that that was not the case: petitioner would have covered their
legal expenses only if they did not want their own individual
attorneys. Thus, while we know that petitioner paid for the
dancers’ defense, we do not know how much petitioner’s management
expected this representation would cost. The amount petitioner
actually spent to defend the dancers was clearly much less than
the amount Hagerman believed it would have cost the dancers to
secure their own representation. The arrests occurred in June
1988, the trial June 1989. On its Forms 1120 for TYE 8/31/88 and
TYE 8/31/89, petitioner reported aggregate legal expenses in the
amounts of $24,501 and $52,951, respectively.
Petitioner presented no evidence that any amount was set
aside for the dancers’ defense. Even if some specific amount was
set aside, this fact would not explain accumulations in any of
the taxable years at issue, since the evidence indicates that the
representation concluded before the end of the first of these
years. Based on the amounts petitioner actually spent for the
dancers’ defense in TYE 8/31/88 and TYE 8/31/89, we are not
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