Oakcross Vineyards, LTD., Dennis D. Groth, Tax Matters Partner - Page 32

                                       - 32 -                                         
          subordinated to its relationship with Winery.  Also, Winery's               
          control of Vineyards' viticultural practices entitled it to use             
          the term "estate bottled" to describe its wines.  Consequently,             
          the evidence supports an inference that a long-term relationship            
          between Vineyards and Winery could have been established even               
          without Vineyards' generous payment terms.                                  
               Because the dealings between Vineyards and Winery are at               
          variance with the practices of unrelated parties with similar               
          objectives dealing at arm's length, we are not prepared to accept           
          that they occurred in the ordinary course of Vineyards' business            
          or were actuated by the business purposes claimed for them.                 
          Petitioner has pointed to no nontax benefit received by Vineyards           
          from Winery commensurate with the substantial concessions and               
          accommodations made by Vineyards for Winery's benefit.  Moreover,           
          petitioner has not shown that Vineyards could not have sold, as             
          it did in 1981, all of its grapes to third parties at market                
          value on terms that did not entail the same period of deferral as           
          its sales to Winery.  To the contrary, it appears to us that                
          Vineyards was able to sell to unrelated buyers all of the grapes            
          that Winery did not require without such a deferral of payment of           
          the purchase price.8  Accordingly, we conclude that petitioner              
          has not established that there was a legitimate business purpose            



          8    Mr. Groth testified that he had significant experience                 
          selling Vineyards' grapes to unrelated parties.                             




Page:  Previous  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  31  32  33  Next

Last modified: May 25, 2011