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determining whether an expense is ordinary and necessary is whether
a “hard-headed” businessperson, under the circumstances, would have
incurred the expense. See, e.g., Cole v. Commissioner, 481 F.2d
872, 876 (2d Cir. 1973), affg. T.C. Memo. 1972-177. Because of the
relationship between petitioner and Union Mexico,6 the expenses at
issue are subject to close scrutiny. See Higgins v. Smith, 308
U.S. 473 (1940).
In the case at bar, the record reflects that petitioner
reimbursed Union Mexico for its share of the inspection and bathing
expenses, and not for any nefarious reason. Petitioner’s and Union
Mexico’s businesses were directly linked. The inspection and
bathing expenses were shared business-related expenses, and
petitioner and Union Mexico benefited equally from the inspection
and bathing functions carried out by Union Mexico. The benefits
derived from the inspection and bathing of cattle ensured the
continued viability of petitioner’s cattle-crossing business.
Thus, we are satisfied that the entire amount petitioner paid to
Union Mexico constituted an ordinary and necessary business
expense. The inspection and bathing of cattle on the Mexican side
of the border was required before petitioner could import the
cattle into the United States. Petitioner’s revenues were based on
the flow of USDA-approved cattle originating in Mexico to U.S.
buyers.
6 The parties agree that sec. 482 is not at issue.
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