- 49 -
according to Bortzov, Crocus was dissatisfied with the pre-
January 1, 1995, business arrangement.
There is no evidence Crocus received, had any control over,
or had rights to make withdrawals from the 90 percent of trade
show receipts collected by petitioner and ECI. Petitioner’s
argument is undermined by the fact that Crocus did not bear the
burden of its direct expenses because those expenses were
reimbursed. Petitioner provided no information about the
financial records of Crocus and ECI to substantiate its argument
for a greater deduction or higher allocation of net profits to
Crocus as a compensation deduction. We therefore reject
petitioner’s request to allocate to Crocus 50 percent or more of
the net profits reported in the stipulation of facts.23
22(...continued)
which are allocable to petitioner. If Expocentr rent payments
are included in the total expenses for foreign trade shows,
Crocus’s share of such expenses is less than 38 percent for the
last 7 months of the fiscal year ended July 31, 1995, and less
than 27 percent for the fiscal year ended July 31, 1996.
23We shall not accede to petitioner’s request that we use
sec. 482 to allocate income between petitioner and Crocus because
we find that petitioner and Crocus were not controlled or owned
by the same interests as required for the application of sec.
482. Control for sec. 482 purposes includes “any kind of
control, direct or indirect, whether legally enforceable or not,
and however exercisable or exercised * * *.” It is the reality
of the control which is decisive, not its form or the mode of its
exercise. A presumption of control arises if income or
deductions have been arbitrarily shifted.” Sec. 1.482-1(i)(4),
Income Tax Regs.; see also B. Forman Co. v. Commissioner, 453
F.2d 1144, 1152-1153 (2d Cir. 1972), affg. in part and revg. in
part 54 T.C. 912 (1970). Although Agalarov owned 100 percent of
Crocus, he owned only 33.33 percent of petitioner. Agalarov did
(continued...)
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