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Expansion and Relocation
Petitioner attempted to prove that its accumulations were
needed to finance costs of relocation amounting to $1 million or
more and to finance the expansion and diversification of its
business. Respondent determined that no accumulations were
allowable for these purposes.
There is no basis for concluding that petitioner reasonably
retained earnings for expansion or diversification during the
years at issue. Hagerman testified regarding a number of
specific investment possibilities that she considered. The only
one for which there is evidence of actual negotiations was the
video store that she offered to purchase in 1989. Contrary to
her account at trial, however, contemporaneous documents indicate
that she was not negotiating the acquisition on petitioner’s
behalf.
The threat to petitioner’s continued operation that arose
first from the expiration of its theater license and later from
Ordinance No. 3465 would have warranted financial preparations
for relocation. The various costs of reestablishing petitioner’s
business in a new location would have been substantial. Hagerman
anticipated that they could exceed $1 million. It does not
follow, however, that petitioner’s management had specific,
definite, and feasible plans to provide for such costs. If after
expiration of the theater license petitioner’s management
recognized a need to accumulate $1 million and were determined to
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