- 8 - 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.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011