Lucian T. Baldwin, III - Page 51

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          president, in June and July 1989 that BAC’s continued losses                
          could have potentially “disastrous adverse tax effects.”23                  
               The record in this case amply demonstrates that petitioner’s           
          use of BAC’s aircraft was primarily for personal purposes.  That            
          fact, combined with BAC’s history of substantial losses which               
          petitioner used to offset his considerable income from trading              
          during the years at issue, leads us to the conclusion that BAC              
          did not engage in its air transportation activity with the intent           
          of making a profit.                                                         
                    2.   Relationship Between BAC’s Activity and                      
                         Petitioner’s Related Businesses                              
               Petitioner asserts that BAC’s profit motive is demonstrated            
          by the Sabre’s effect on the increased profitability of                     
          petitioner’s related businesses.  Petitioner cites Campbell v.              
          Commissioner, 868 F.2d 833 (6th Cir. 1989), affg. in part and               

               23In a memorandum dated July 7, 1989, to petitioner, Mr.               
          Stubbs outlined three options for turning BAC into a profit                 
          center.  The three options consisted of the manipulation of                 
          company chargeback rates to ensure that BAC was profitable, the             
          operation of BAC as a charter service, and the implementation of            
          a timesharing plan with respect to the Sabre.  BAC did not                  
          implement any of the proposals.  In another memorandum dated                
          Apr. 20, 1990, Mr. Stubbs expressed continuing concern over BAC’s           
          reliance on loans from petitioner and BCC to cover BAC’s expenses           
          and recommended a large increase in the rates charged to                    
          petitioner’s other companies.  Mr. Stubbs noted, however, that              
          FAA restrictions on passenger fees would force BAC to charge                
          lower fees to outsiders.  In response, BAC increased its                    
          intercompany charges from $1,200 per flight hour in 1989 to                 
          $2,100 per flight hour in 1990 and to $2,500 per flight hour in             
          1991.  These rate increases did not eliminate BAC’s losses.                 
          BAC’s losses in 1988 ($195,610), 1989 ($451,102), 1990                      
          ($528,914), 1991 ($381,561), and 1992 ($285,848) exceeded $1.8              
          million in the aggregate.                                                   

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