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petitioner deducted the amount paid under the Distribution
Agreement and all other expenses associated with the operation of
the courier business. We believe payment of the "inbound expenses"
by petitioner constituted a quid pro quo for information and
promotional benefits petitioner obtained from the Guatemalan
companies. Hence, they were incurred in furtherance of
petitioner's business. As stated previously, a substantial
percentage of petitioner's business revenues for the year in issue
came as a result of the flow of envelopes originating in Guatemala
to recipients in the United States.
The record herein reflects that J.F. Leon left Guatemala in
1968 because of a feud with his brothers. We do not believe that
he or his brothers would have performed services for one another
gratuitously. Rather, we believe that the relationship between J.F.
Leon, on the one hand, and J.R. Fong and R.A. Leon, on the other
hand, was such that they were "`more independent in action than
strangers in blood'". Levenson & Klein, Inc. v. Commissioner, 67
T.C. 694, 718 (1977) (quoting Jos. N. Neel Co. v. Commissioner, 22
T.C. 1083, 1090 (1954)). Accordingly, we conclude the relationship
between petitioner and the Guatemalan companies was at arm's
length.
Because we found the relationship between petitioner and the
Guatemalan companies was at arm's length, we do not believe it
appropriate to substitute our judgment for that of J.F. Leon in
determining how much should be paid to the Guatemalan companies.
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