JRJ Express Incorporated, A California Corporation, d.b.a. King Express International - Page 8

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                                       OPINION                                        
          Issue 1.  Section 162(a) Expenses                                           
               The primary issue for decision is whether petitioner is                
          entitled to deduct expenses which respondent characterizes as the           
          costs of processing and delivering mail from Guatemala to the               
          United States.  Petitioner contends that these so-called inbound            
          delivery expenses were incurred for valid business reasons: (1) The         
          inbound mailings included petitioner's promotional materials which          
          generated substantial business to petitioner during the year in             
          issue, and (2) the inbound mailings were used to provide petitioner         
          with a continuously updated mailing list.  Thus, petitioner asserts         
          that the "inbound delivery expenses" were tied directly to its              
          outbound courier business inasmuch as they were incurred both to            
          develop new business and maintain (or protect) its ability to               
          contact current or previous  customers.  Respondent, on the other           
          hand, argues that petitioner was not in the business of delivering          
          items from Guatemala to the United States, and thus the expenses            
          are nondeductible. Respondent further contends that petitioner's            
          business was not conducted at arm's length but rather as a                  
          "cooperative Guatemala-U.S. venture" between family members.                
               Section 162(a) provides that "There shall be allowed as a              
          deduction all the ordinary and necessary expenses paid or incurred          
          during the taxable year in carrying on any trade or business".  The         
          test is whether a "hardheaded" businessperson,  under  the                  
          circumstances, would have incurred the expense.  See, e.g., Cole v.         



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