- 11 - 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, threePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011