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repayment was dependent on the success of the venture. We reach
that conclusion because petitioners lacked the intent to repay,
the transactions were not at arm's length, an unrelated creditor
would not have made similar advances, and the transactions were
driven solely by tax-avoidance motives. Gilbert v. Commissioner,
supra; Gilboy v. Commissioner, supra. Accordingly, the treatment
of the loans as valid indebtedness would not comport with the
intent of section 163. Therefore, respondent's determinations
will be sustained as to this issue.
V. The $236,313 That MDT Paid to MSI as a Marketing Fee
Petitioners deducted $236,313 as a marketing expense on
their fiscal year 1987 (December 1, 1986, to November 30, 1987)
Federal tax return. Petitioners argue that MDT paid MSI the
money as compensation for the use of MSI personnel in connection
with opening the California castle.
Respondent contends that the payments were an attempt to
split profits between MSI and MDT and, as such, were not
deductible. Respondent also contends that the documents
memorializing the transaction were backdated.
Petitioners sought advice from C&L on how to structure an
arrangement where two entities could share profits and losses
equally while one company retained the benefit of appreciation in
the property. In October 1986, C&L gave petitioner advice that
consisted of warnings about tax implications and a suggestion to
set up a management agreement with fees contingent on profits.
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