- 85 -
JDP (and thus petitioners) claimed deductions for research
and development expenditures that we found were in actuality
nondeductible contributions to capital. Such deductions caused a
material distortion of their income. See Lieber v. Commissioner,
supra; Upham v. Commissioner, supra. The underpayment resulting
from such disallowed deductions is therefore attributable to a
tax-motivated transaction. Accordingly, petitioners are liable
for the additional interest determined in the notices of
deficiency or asserted by amendment to answer. Respondent is
sustained on this issue.
To reflect the foregoing,
Decisions will be entered for
respondent in docket Nos. 13431-89
and 24177-89.
Decision will be entered under
Rule 155 in docket No. 19140-89.
22(...continued)
disallowed for any period because (i) the expenditure
resulting in the deduction was a deposit rather than a
payment, (ii) the expenditure was prepaid for tax
avoidance purposes and not for a business purpose, or
(iii) the deduction resulted in a material distortion
of income (see, e.g., Rev. Rul. 79-229, 1979-2 C.B.
210).
Page: Previous 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 Last modified: May 25, 2011