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products petitioner sold in UMI’s FYE May 31, 1996. Pursuant to
a similar agreement petitioner paid $1,105,276 (in petitioner’s
FYE June 30, 1996) for the same services in UMI’s FYE May 31,
1997.
As a result of UMI’s services, within UMI’s first fiscal
year (FYE May 31, 1996), petitioner’s gross receipts exceeded $1
million with $800,000 in gross profits from the sale of the
products UMI branded, marketed, and advertised.8 Furthermore, in
petitioner’s 1997 fiscal year, UMI’s services caused petitioner’s
gross receipts to double, exceeding $2 million and earning over
$1 million in gross profits. Petitioner deducted the amounts
paid to UMI as advertising expenses in the fiscal years at issue.
F. Mr. Reeves’s Home and the Floating Structures
On September 24, 1993, Mr. Reeves purchased 1.2 acres along
the Willamette River in Newberg, Oregon, which included Mr.
Reeves’s family residence and a dilapidated houseboat and a
floating dock on the river behind and down a hill from the
residence. The residence was a two-story house with
approximately 2,200 square feet per floor. The first floor was a
daylight basement used by the previous owner to store
automobiles. The houseboat and the dock were connected to Mr.
8 The record does not indicate CTC’s earnings or the amount
of time Mr. Reeves spent conducting its activities. The record
indicates Mr. Reeves sold CTC in 1997.
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Last modified: November 10, 2007