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Section 162(a)(1) allows as a deduction all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal
services actually rendered.
Petitioner has presented no financial records of the
business operations of ECI and Crocus. The incompleteness of the
record has been aggravated by respondent’s unexplained failure to
follow through with discovery after the Court granted
respondent’s application for a letter of request authorizing a
foreign deposition. The stipulated facts in this case present a
mysterious world where real-life agreements are disregarded,
financial records are nowhere to be found, and a myriad of other
relevant information is absent. Although both petitioner and
respondent have agreed that disregarding the royalty agreement
and ECI should not have an adverse effect on either party, the
“black hole” surrounding the financial operations of ECI and
Crocus has impaired our ability to understand the business and
financial relationships of petitioner and Crocus.
23(...continued)
not control the vote of petitioner’s Board of Directors because
he was one of three directors. There is no evidence in the
record that Agalarov controlled petitioner’s business decisions.
Thus, we do not find that petitioner and Crocus were owned or
controlled by the same interests for purposes of applying sec.
482.
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