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the meaning of section 162, an expense need be "appropriate and
helpful" to the taxpayer's business. Welch v. Helvering, 290
U.S. 111, 113 (1933). The requirement that an expense be
"ordinary" connotes that "the transaction which gives rise to it
must be of common or frequent occurrence in the type of business
involved." Deputy v. DuPont, 308 U.S. 488, 495 (1940) (citing
Welch v. Helvering, supra at 114).
We question whether the consulting fees were determined on
an arm's-length basis. Mr. Li and Mr. Chapple were friends.
Worltek, a corporation owned 50 percent by Mr. Chapple,
eventually acquired 95 percent of petitioner. QPL, a corporation
whose majority shareholder was Mr. Li, later acquired Worltek.
There is no evidence in the record of how the consulting fees
were determined. The monthly amounts, which were usually billed
on the 10th of each month, were for the half-time services of Mr.
Combs and the services of Mr. Smith. The monthly fees ranged
from $31,000 (for just Mr. Smith) to $124,932 (69,632 + 55,300).
These relatively large amounts--given the size of petitioner's
business--were promptly paid, even though there was no written
contract between petitioner and Worltek and the invoices
themselves provided almost no detail. There is no evidence in
the record of the skills Mr. Combs and Mr. Smith may have
possessed to warrant such consulting fees. We hold that
petitioner has failed to prove that the consulting fees were
ordinary and necessary business expenses.
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