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Nevertheless, in 1993, petitioner’s accountant represented to
respondent that BAC operated as a charter service, and BAC made
similar representations concerning the nature of its business on
its tax returns.
Although BAC maintained extensive accounting records as well
as separate books of account and a separate checking account, BAC
did not consistently generate invoices to petitioner’s other
companies until May 1989. After November 1990, BAC did not
include passenger names other than petitioner’s in the aircraft
utilization reports and trip recaps maintained by BAC. BAC did
not maintain any records regarding the nature of the trips taken
on its aircraft; BAC simply contends that each trip was a
business trip because BAC charged a fee for everyone who used its
aircraft.
The record contains no credible evidence indicating that BAC
ever developed a business plan or that it engaged in any market
analysis before setting its per-passenger rates. Although BAC
increased its per-passenger rates three times during the years at
issue, the rate increases were implemented without any market
studies in an effort “to successfully withstand any level of IRS
scrutiny”. BAC did not take any additional steps to increase its
income or reduce its expenses despite advice from both
petitioner’s accountant and David Stubbs, BAC’s pilot and
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