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OPINION
Respondent determined that for 1993 and 1994, petitioner was
not entitled to reduce its gross income by construction expenses
relating to the two houses. At trial, the Court asked Allen Wood
why these expenditures were characterized as cost of goods sold.
Allen Wood stated that he did not know why and acknowledged that
such treatment "could have been wrong".
We sustain respondent's determination. The construction
expenses related to houses that were built on Allen Wood's
property and ultimately sold by Wood Developers. In essence,
petitioner paid Allen Wood's construction expenses. See Estate
of Briden v. Commissioner, 11 T.C. 1095, 1134 (1948) (stating
that a shareholder's personal expenses are not a part of a
corporation's cost of goods sold), affd. 179 F.2d 619 (1st Cir.
1950).
Petitioner contends, in the alternative, that it is entitled
to an advertising deduction for these expenses. At trial, Allen
Wood attempted to establish a nexus between petitioner's business
and an advertising deduction by asserting that petitioner's
payment of the expenses was part of a plan to meet local
contractors. We reject petitioner's contention.
Advertising expenses are deductible if such expenses are
"ordinary and necessary". Sec. 162(a); see sec. 1.162-1(a),
Income Tax Regs. An expense is "ordinary" if it is customary or
usual within a particular trade, business, or industry, see
Deputy v. du Pont, 308 U.S. 488, 495-496 (1940), and "necessary"
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Last modified: May 25, 2011