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advertising expenses. As a result, respondent reduced
petitioner’s allowable advertising expenses to $274,139.
UMI received the $1,105,276 during its FYE May 30, 1997.
UMI did not receive a notice of deficiency for this year, and its
FY 1997 is not at issue in this case. Respondent did not produce
UMI’s tax return for the FY 1997, evidence showing Mr. Reeves
received a $831,137 distribution from UMI, or evidence indicating
how UMI used the amounts petitioner paid for advertising.
Respondent’s revenue agent Steve Rans, who conducted the
audit of petitioner’s returns, testified that in determining
ordinary and necessary advertising expenses he did not take into
consideration wages paid by UMI, UMI’s costs of creating and
developing ideas, nor all the activities UMI performed to market,
advertise, and brand petitioner’s suntan lotion products.
Mr. Reeves testified that UMI had a substantial marketing
and advertising plan to create a lifestyle image for petitioner’s
products by: (1) Developing product catalogs; (2) designing
packaging and logos; (3) developing trade show display booths;
(4) attending trade shows; (5) meeting with salespersons to
educate them on petitioner’s products and how to sell them; and
(6) producing radio advertisements and promoting sporting events
to advertise petitioner’s products.
Steve Rans also testified that because of UMI’s marketing
and advertising in the FY 1996 and FY 1997, petitioner’s gross
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Last modified: November 10, 2007