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specifically, creative advertisements. Its principal place of
business was in Studio City, California, when its petition was
filed. For Federal income tax purposes, it uses the cash
receipts and disbursements method of accounting and a taxable
year that ends on August 31.
After 1996, William Michael Roach (Roach) was petitioner’s
sole shareholder, director, and officer. Roach is a lawyer by
schooling and a filmmaker by profession. He is an avid and
experienced sailor who during the subject years loved to race
yachts. He was during those years a member of the California
Yacht Club in Marina Del Rey, California (yacht club).
Throughout petitioner’s existence, Roach has used petitioner
and its resources to advance his personal enjoyment of sailing
and his initiation into the sport of sailboat racing. On or
about August 17, 1992, petitioner purchased a 30-foot Catalina
sailboat (Catalina) for approximately $29,067. Petitioner’s
board resolved as to the Catalina that “It is in the best
interest of the Corporation [petitioner] to purchase a Catalina
30 to be used for a general business office, staff and client
meetings, and corporate entertainment for a purchase price of
approximately $29,067". On September 18, 1996, petitioner
purchased a 35.5-foot Beneteau sailboat (Beneteau) at a cost of
$67,000. Petitioner’s board resolved as to the Beneteau that “It
is in the best interest of the Corporation to purchase a Beneteau
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