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a purported oral agreement--the same oral agreement that
petitioner previously had denied the existence or validity of in
the State court action. Further, petitioner disregarded the
jury's finding that the automobiles and office furnishings and
equipment were its personal property and not the property of the
Ohanesian family or related entities. In the alternative,
petitioner contended that the expenses were deductible business
expenses because "the jury decision includes a determination that
the Petitioner was obligated to pay each and every one of the
expenses disallowed by the Notice of Deficiency, as a part of its
contractual obligation with the Ohanesian Entities." Petitioner
asserted that its receipt of management fees was conditioned on
its payment of the disallowed expenses on behalf of Ohanesian and
the related entities.
The Ohanesians and petitioner subsequently settled their
cases with respondent prior to trial. The Ohanesians conceded
that they were not entitled to deductions for the portion of the
fees paid to petitioner which were ultimately used to pay for
nondeductible personal expenses. The Ohanesians' concession in
turn enabled respondent to concede that the payments made by
petitioner to fund those same personal expenses were made in
petitioner's capacity as a conduit for the Ohanesians. As such,
the payments were allowed to offset income which MMC had
recognized on the funds it had received from the Ohanesians. The
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