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petitioner accrued monthly note interest in varying monthly
amounts totaling $4,555.
As of December 31, 1994, Koehler owed petitioner $76,705
under the August 31, 1994, demand promissory note. Koehler did
not make principal payments on the $76,705 note. Petitioner has
not sought repayment of the $76,705 advanced to Koehler.
On its return for the taxable year ended November 30, 1996,
petitioner deducted as a miscellaneous expense the $76,705
advanced to Koehler. In the notice of deficiency, respondent
disallowed the deduction. Respondent determined that it had not
been established that this $76,705 (1) was an ordinary and
necessary business expense and (2) had been expended for the
purpose stated.
OPINION
The factual circumstances in this case consist of a
Byzantine labyrinth of complex transactions. Most of the
transactions were generated to achieve a tax effect. We must
decide whether these transactions should be respected. Some of
the transactions we consider present less sophisticated questions
such as when and by whom income should be reported or whether
certain deductions should be allowed. The specific issues we
consider involve: (1) Petitioner’s entitlement to more than $2.7
million of deductions from the second lease strip deal for its
taxable years ended November 30, 1996 and 1997; (2) petitioner’s
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