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should have been reported by Amazona on a return covering 1991,
not on its initial return filed for calendar year 1992.
There is no evidence in the record to establish that the
funds provided by petitioner were actually expended by Mr.
Garrett for the purposes stated on the amended 1992 return. That
return reflects that Amazona claimed total expenses of $48,579
for entertainment fees, legal fees, travel, and meals and
entertainment.
With respect to the claimed legal fees of $794.08,
petitioner testified that the payment was for the attorney’s
services in incorporating Amazona.10 Such an organizational
cost, however, is a capital expenditure not a deductible business
expense under section 162. Upon an S corporation’s proper
election, such organizational costs may only be amortized and
deducted by that S corporation’s shareholders ratably over a
period of not less than 60 months beginning with the month in
which the corporation starts business. See sec. 1363(b)(3), 248;
secs. 1.248-1(b)(1) and (2), Income Tax Regs. In the instant
case, however, no such election was ever made on Amazona’s 1992
return.
With respect to the $22,000 petitioner asserts he repaid to
10Petitioner originally had expected Mr. Garrett to pay this
legal bill using the $5,000 of start-up money that petitioner had
deposited in Amazona’s bank account in July 1991. Following Mr.
Garrett’s failure to pay the attorney’s bill for the
incorporation work, petitioner paid $794.08 to the attorney in
1992.
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