Midwest Industrial Supply, Inc. - Page 8

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          April 27, 1994, which stated that the request was prompted by petitioner's  
          "advertisement in an equestrian publication."  Respondent had been auditing 
          petitioner's tax returns for several years and had issued its notice of     
          deficiency almost 2 months prior to this exchange of letters.  Nevertheless,
          neither letter connects the inquiry to the 1986-89 period, and such a       
          connection is unlikely, because both letters were dated almost 5 years after
          that period.  Moreover, petitioner advertised through trade journals, product
          brochures, and loudspeaker announcements during the years in issue.         
          Petitioner did not advertise in equestrian magazines during those years.  We
          thus conclude that the equestrian magazine advertisement mentioned by the   
          general contractor in his letter did not relate to the 1986-89 period.      
               In sum, we conclude that petitioner entered into this sponsorship      
          arrangement primarily to pay personal expenses of its sole shareholder and  
          that petitioner was not reasonably likely to, and did not, benefit from its 
          payments to Sussex Farm.  Therefore, we hold that the payments in issue were
          not deductible as ordinary or necessary business expenses within the meaning
          of section 162.                                                             
          II.  Applicability of the Additions to Tax and Accuracy-Related             
              Penalty Provisions                                                     
               We now consider the additions to tax and the accuracy-related penalty  
          determined by respondent.  As with the deficiency itself, petitioner bears the
          burden of proof.  See Rule 142(a); Bixby v. Commissioner, 58 T.C. 757, 791  
               Section 6653(a), which is applicable to petitioner's 1986, 1987, and   
          1988 tax years, imposes an addition to tax for underpayments attributable to
          negligence or disregard of rules or regulations.  For petitioner's 1986 and 
          1987 tax years, the additions to tax are equal to the sum of 5 percent of each
          underpayment and 50 percent of the interest payable on the portion of any   
          underpayment attributable to negligence or disregard of rules or regulations.

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