-44-
the evidence. Buzzetta Construction Corp. v. Commissioner,
92 T.C. at 648; Mailman v. Commissioner, 91 T.C. 1079, 1084
(1988); Pulver Roofing Co. v. Commissioner, 70 T.C. 1001,
1011 (1978). Taxpayers are required to clearly show that
the Commissioner’s action was arbitrary, capricious, or
without sound basis in fact. Knight-Ridder Newspapers v.
United States, 743 F.2d 781, 788 (11th Cir. 1984); Mailman
v. Commissioner, 91 T.C. at 1084; Drazen v. Commissioner, 34
T.C. 1070, 1076 (1960). [Capitol Federal Savings & Loan v.
Commissioner, 96 T.C. 204, 213 (1991).]
Petitioner’s application for the favorable ruling letter
that it received from respondent represented that no part of its
net income would inure to the benefit of any private shareholder
or individual. Petitioner’s articles of incorporation are to the
same effect, but reserve the exceptions that it is permitted to
(1) pay reasonable compensation for service and (2) make payments
and distributions in furtherance of its charitable purposes. On
the basis of a record which is woefully inadequate on these
particular points, we have held that (a) there was an inurement
in petitioner’s fiscal 1986 when petitioner paid Zerbini to
provide legal services to Zeve, and (b) there were inurements in
petitioner’s fiscal 1984 and 1985 because petitioner failed to
carry its burden of proving that it did not overpay P&R (owned 20
percent by Zeve and 20 percent by Popovic) for renting the
Center. Our holdings on inurement in the instant case are in
effect holdings that, in each of the years in issue, petitioner
“operated in a manner materially different from that originally
represented”, within the meaning of section 601.201(n)(6),
Statement of Procedural Rules.
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