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Wayne S. Kaplan, William Albert Schmalzl, Thomas Kittle-
Kamp, Clisson S. Rexford, and Stephen D. Katzman, for petitioner.
Kim A. Palmerino and Gary Walker, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HALPERN, Judge: Petitioner is the common parent corporation
of an affiliated group of corporations making a consolidated
return of income (the affiliated group). By notice of deficiency
dated December 15, 1994 (the notice), respondent determined a
deficiency in Federal income tax for the affiliated group for its
1982 taxable (calendar) year in the amount of $9,856,982.76 along
with an increased rate of interest under section 6621(c). The
issues for decision are (1) the deductibility of graphic design
expenditures made in connection with certain cigarette products
and (2) the character of a portion of a payment received as the
result of an arbitration proceeding arising from the
expropriation of certain property by the Government of Kuwait.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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