Victor I. Rosenberg and Deborah I. Rosenberg - Page 21




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          Cabana Boy to be an S corporation, those intentions would be                
          irrelevant because what matters is what petitioners did.  See Don           
          E. Williams Co. v. Commissioner, 429 U.S. 569, 579-580 (1977);              
          Commissioner v. National Alfalfa Dehydrating & Milling Co., 417             
          U.S. 134, 148-149 (1974).                                                   
               Citing Arrowsmith v. Commissioner, 344 U.S. 6 (1952),                  
          petitioners contend that they may disregard Cabana Boy’s                    
          subchapter C status because they were Cabana Boy's alter ego.  We           
          disagree.  In Arrowsmith v. Commissioner, supra, two taxpayers              
          liquidated their corporation and reported a capital gain.  See              
          id. at 7.  Later, the taxpayers paid a judgment against the                 
          corporation, and deducted the judgment as an ordinary business              
          expense on their personal income tax returns.  The U.S. Supreme             
          Court held that the judgment was a capital expense.  See id. at             
          9.  Arrowsmith does not establish that Cabana Boy should not be             
          treated as a C corporation.                                                 
               Cabana Boy had a business purpose and assets, did business,            
          entered into contracts, and had officers.  It was a subchapter C            
          corporation, separate from petitioners, and petitioners treated             
          it as such.  We conclude that petitioners may not disregard                 
          Cabana Boy’s subchapter C status.                                           
          C.   Whether Petitioners May Deduct the Advances Under Section              
               212                                                                    
               Petitioners contend that they may deduct the advances under            
          section 212.  We disagree.  A taxpayer may deduct ordinary and              





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