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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
(1972).
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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