CMA Consolidated, Inc. & Subsidiaries, Inc. - Page 86

                                       - 52 -                                         
          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            






Page:  Previous  42  43  44  45  46  47  48  49  50  51  52  53  54  55  56  57  58  59  60  61  Next

Last modified: May 25, 2011