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effect amounts to a disallowance of the Innovative Schedules C
net losses of $4,137 for 1992 and $9,906 for 1993.
We regard Mr. Ciaravella's racing activity not as his trade
or business, carried on by him through a sole proprietorship, but
as an activity carried on by him on behalf of Dolphin, for which
Dolphin reimbursed him. This is much the same as the case of a
corporate officer who voluntarily pays the expenses of an
activity conducted for the benefit of his corporate employer.
The gross receipts of Mr. Ciaravella, in the name of Innovative,
are akin to reimbursements from his corporate employer for race
car expenses that he paid out of his own pocket. The net losses
claimed on the Schedules C that we have disallowed are akin to
payments made by Mr. Ciaravella for racing activities on behalf
of Dolphin for which Dolphin did not reimburse him. Voluntary
payments by a corporate officer for activities conducted on
behalf of his corporate employer, for which he is not reimbursed,
are not deductible by the officer, in the absence of an agreement
or clear understanding as to a corporate policy that the employee
is expected to make such payments, without reimbursement, as part
of the conditions of his employment. See, e.g., Westerman v.
Commissioner, 55 T.C. 478 (1970); Stone v. Commissioner, T.C.
Memo. 1996-507. There is no evidence of any such agreement or
understanding in the case at hand.
4. Accuracy-Related Penalty
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