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evidence petitioner distributed profits under the stockholders’
agreement to Agalarov or the other stockholders.
We see no evidence that petitioner and Crocus were formed
for purely tax avoidance purposes. Petitioner’s stockholders
subjected themselves to two layers of U.S. income tax by forming
petitioner as a separate corporate entity to conduct trade shows.
It would not have been efficient, in the tax or economic sense,
for petitioner to pay Agalarov for his services by declaring a
dividend or making a distribution subject to double taxation.
Rather, petitioner could receive a deduction from gross revenues
either by paying Agalarov directly as an employee or by paying
Crocus directly. Inasmuch as Crocus is a separate entity from
petitioner, it is highly unlikely that Crocus would have
performed services at foreign trade shows for nothing more than
the reimbursement of its direct expenses. Although the disclosed
arrangements between petitioner and Crocus are opaque, we see
nothing in them that would justify the stretch respondent asks
the Court to indulge in. We see no reason to disregard the
separate corporate status of petitioner or Crocus.
Petitioner argues that Crocus should be allocated at least
50 percent of net profits reported in the stipulation of facts
because Crocus paid more than 50 percent of the total foreign
trade show expenses paid by petitioner and Crocus.22 Also,
22Petitioner’s argument disregards Expocentr rent payments,
(continued...)
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