Donald C. Richardson and Rita M. Allaire - Page 19

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               Petitioners substantiated a large part of the expenses                 
          during their meetings with respondent's Appeals officer by                  
          providing the requisite documentation at that time.                         
                         (3).  Interest Expense Deduction (PCCL)                      
               The notice of deficiency to PCCL adjusted a claimed interest           
          expense deduction in the amount of $37,777.  Respondent                     
          disallowed the interest expense deduction because "it has not               
          been established that any amount constitutes an ordinary and                
          necessary business expense or was expended for the purpose                  
          designated nor that a bona fide debt existed".  For the reasons             
          stated in the "Other Deductions" analysis, respondent had a basis           
          in fact at the time of the notice of deficiency for his position            
          of disallowing the interest deduction.  PCCL did not substantiate           
          this claimed deduction until it provided the requisite documents            
          to respondent's Appeals Office subsequent to the filing of the              
               In addition, during the course of respondent's examination,            
          respondent had interviewed a former employee of PCCL with regard            
          to this matter.  Respondent was provided with pertinent                     
          information that a related entity, Dorrial, Inc., was set up as a           
          "shell corporation", with the purpose of diverting PCCL funds.              
          Also, Paige had provided respondent with information regarding              
          the loan and related company in issue.                                      

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