Vitamin Village, Inc. - Page 28

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          that $2 million and $1,012,000 in the respective fiscal years at            
          issue are deductible under section 162(a)(1).33                             
          III. Advertising Expenses                                                   
               Petitioner argues it is entitled to deduct advertising                 
          expenses under section 162(a) of $1,105,276 for its FYE June 30,            
               Advertising expenses are a type of ordinary and necessary              
          expense for which a current deduction is allowed to an active               
          trade or business.  Sec. 162(a); sec. 1.162-1(a), Income Tax                
          Regs.  Advertising expenses are allowed as a deduction under                
          section 162 if the taxpayer can demonstrate a sufficient                    
          connection between the expenditure and the taxpayer’s business.             
          See RJR Nabisco Inc. & Consol. Subs. v. Commissioner, T.C. Memo.            
               Petitioner is an active trade or business that entered into            
          an exclusive contract with UMI to conduct all of petitioner’s               
          marketing, advertising, and branding in the fiscal years at                 
          issue.  In its FYE June 30, 1996, petitioner paid UMI $1,105,276            
          and deducted this amount as advertising expenses.                           
               Respondent argues that $831,137 of the advertising expenses            
          was not for ordinary and necessary advertising expenses because             
          it was a distribution to Mr. Reeves from UMI and not paid as                

               33 Conversely, the Court finds $278,000 of the $2,278,000              
          claimed by petitioner as a deduction for FYE June 30, 1995, to be           

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