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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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