National Industrial Investors, Inc. - Page 27

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            business included managing the Burke Property, collecting its                              
            liability against IML, and selling Lot 51.  Petitioner also spent                          
            considerable time and money attempting to exchange the Burke                               
            Property for other real estate in a section 1031 transaction.                              
            Nevertheless, several of petitioner's claimed deductions deserve                           
            special attention.                                                                         
                  Several checks to the S.F. Commercial Club in both 1989 and                          
            1990, a check to the Secretary of State of Colorado for $5 in                              
            1990, and one to the Riverside County Clerk's Office for $67.80                            
            in 1990 are unexplained, and are therefore disallowed.                                     
                  Petitioner claims that it maintained "key man insurance" on                          
            Byrne.  Byrne testified that he had been an officer of the                                 
            corporation, off and on, over the years.  The corporate minutes                            
            indicate that he was also petitioner's vice president during 1989                          
            and 1990.  Petitioner was a 40-percent beneficiary under the                               
            policy.  Under these facts, section 264(a) controls                                        
            deductibility.  It provides:                                                               

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