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under contract with the affiliates to transfer the contracts and,
also, to pay the expenses in connection with the transferred
contracts. This contract offered by petitioners was unsigned and
undated and is lacking in the usual earmarks of a contract that
has been negotiated at arm’s length. In addition, Mr. Bone and
Mr. Guerrero owned significant interests in the affiliates.
Without further explanation, the proffered document appears to be
little more than an attempt to assign expenses from one related
taxpayer to another. More significantly, petitioners have not
shown that AJCS had a valid business reason for agreeing to pay
the costs to complete contracts from which it would not
automatically or directly receive any part of the gross proceeds.
By way of contrast, the amounts of the affiliates’ expenses paid
by AJCS are substantially more than the management services fees
that it could have earned or did earn. There was no reasonable
expectation of recovery by AJCS of enhancement to its business
through those expenditures. Accordingly, we find unpersuasive
petitioners’ evidence that AJCS was contractually bound to pay
the expenses of the affiliates or that any such payment of
expenses by AJCS would have furthered or promoted AJCS’s trade or
business.
Petitioners also argue that the four affiliates could not
afford to pay their own expenses. That argument is directly
contradicted by the record. During the period in question, three
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Last modified: May 25, 2011