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Second, we are not satisfied that HPD performed services for
HPD-Latigo. Hence, there is no perceptible business purpose or
economic justification for the profit participation fee.
Third, by directing the S corporation (HPD-Latigo) to show an
account payable of $300,000 to the C corporation (HPD), the profits
of the S corporation decreased and were moved into the C
corporation, which was running at a loss. We agree with respondent
that the profit participation fee was but a fabrication, primarily,
if not solely, engineered to shift income between related entities
in order to minimize petitioners’ (and their wholly owned entities’)
overall tax obligation. Consequently, we conclude respondent
properly disallowed the claimed $300,000 profit participation fee,
which in turn resulted in an increase in petitioners’ 1989
distributive share of profits from HPD-Latigo.
Issue 2. Travel and Automobile Expenses
The next issue is whether HPD-Latigo is entitled to a $8,249
deduction for travel expenses and a $7,379 deduction for automobile
expenses.
Section 162(a) allows a taxpayer to deduct “all the ordinary
and necessary expenses paid or incurred * * * in carrying on any
trade or business”. A taxpayer must substantiate any deduction
claimed. See Hradesky v. Commissioner, 65 T.C. 87, 89-90 (1975),
affd. per curiam 540 F.2d 821 (5th Cir. 1976). In substantiating
deductions, taxpayers are required to maintain adequate records
sufficient to enable the Commissioner to determine the taxpayer’s
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