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role Innovative appeared to play was to function as a checking
account, receiving deposits from Dolphin and in turn issuing
checks to trade publishers for the advertising expenses of
Dolphin.6
Innovative played the same role with respect to payments
made by Innovative for the race car expenses and boat fuel
expenses. Innovative simply acted as a conduit through which
Dolphin would reimburse Mr. Ciaravella for expenses incurred in
connection with the racing activity. And, although it was
Dolphin that provided fuel to the boats that displayed its logo,
the fuel expenses were deducted on Mr. Ciaravella's returns as an
expense incurred by Innovative.7 Accordingly, all deductions
claimed on Mr. Ciaravella's Schedules C in connection with
Innovative are disallowed. Similarly, because Innovative is not
a trade or business, respondent's reversal of gross receipts
included in Mr. Ciaravella's income is sustained. In short, our
treatment of Mr. Ciaravella's Innovative Schedules C, namely, the
reversal of gross receipts and disallowance of deductions, in
6 The passive role played by Innovative is further confirmed
by the fact that Icarus in its consolidated return with Dolphin
deducted the same expenses as Innovative for advertising and for
race car expenditures during the years in issue.
7 Unlike other expenses for which Mr. Ciaravella was
reimbursed by Dolphin, the boat fuel was provided by Dolphin
directly to the boat racers in exchange for having the Dolphin
logo displayed on the boats.
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