APECO, Mr. Kluener was not obligated to use the method of doing
so that would incur the most tax and that it was appropriate to
use APECO's NOL's to shelter the gain realized on the sales of
the horses so that the full amount of the sales proceeds would be
available for APECO's purposes.
We have considered petitioners' arguments; however, after
considering all of the circumstances of the instant case, we
conclude that petitioners have not established that there was a
legitimate business purpose, in addition to the admitted tax
avoidance purpose, for the transfer of the horses to APECO. At
the time that the horses were transferred, the development of the
Planatronic was just beginning, and the project did not yet have
a name. Although the concept of a "turbo airless sprayer" was
described at a meeting of APECO's board on June 8, 1989, there is
no mention of such a product in the minutes of subsequent board
meetings on November 20, 1989, and January 16, 1990. During mid-
1989, APECO's personnel had not allocated a specific amount of
money to the development of the Planatronic. Furthermore, APECO
had received a $1,500,000 loan from Fifth Third at approximately
the same time as the transfer occurred. Moreover, it was Mr.
Kluener's practice at all relevant times to finance APECO's
operations with loans, rather than capital contributions. Mr.
Hathaway, Mr. Kluener's adviser, testified that Mr. Kluener
preferred to finance APECO in that manner.
Even after the sales proceeds were received, they were not
used for any purpose of APECO during the time when they were held
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