United States Tax Court

“ Generally and not specifically, the est Body of Knowledge is made up in form and substance of the est Standard Training, Graduate Seminars, Guest Seminars, communication and other workshops, and numerous special events, presentations and lectures. The est Body of Knowledge is an educational program involving and consisting of material designed to permit individuals to experience life and living more fully. It is indebted to many thought systems and is a totally new way of looking at reality. ”

“ The visits to individuals in India who were in some way versed in aspects of Indian philosophy appear to be incidental in nature. We have carefully considered the record and we are persuaded that the trip to India was primarily personal in nature. Petitioner has failed to establish the requisite nexus between the trip to India and its trade or business. We reach the same conclusion with respect to the around- the-world airplane tickets for Erhard and Ingrasci since the record is virtually silent as to the purpose of such trip. ”

“ EMPLOYEE recognizes that it is in the mutual interest of himself and EMPLOYER that he remain an active public figure in these areas and, therefore, he agrees that he will not unreasonably refuse to perform any services called for by the terms of such agreement. Should a dispute arise between the parties concerning the reasonableness of any EMPLOYEE refusal to perform any said services, such dispute shall be subject to binding arbitration. ”

“ A credit balance on a system accounting redounded to the benefit of the client in that it was available to him for future use. In order to implement his tax planning techniques Margolis or his employees engaged in so-called 'money movements.' A typical 'money movement' consisted of borrowing money from one system entity and paying it to another. A 'money movement' is described by the following pattern: periodically, after an accumulation of 'transactions requests' submitted by Margolis or his employees was collated, a series of proposed transactions was plotted on a spread sheet. ”

“ From the inception of EST in 1971 and through at least 1972 Erhard personally conducted all training sessions disseminating his concept described as the Body of Knowledge (hereinafter sometimes described by the terms est standard training or standard training) . Erhard considers the training as 'know-how which we pass on to people about what to do to have the ability to make their lives work for them more effectively.' The first training session was held at some time in October 1971. ”

“ EMPLOYER agrees that it will provide to EMPLOYEE any and all expenses and membership dues or any other related expenses in professional organizations which will further his experience, knowledge and public exposure in the area of mind expansion and development. These expenses shall extend to social as well as business clubs, organizations and associations.
(22) EMPLOYEE will at all times cooperate fully with EMPLOYER in seeking and obtaining employment opportunities. ”

“ System entities dealt almost exclusively with clients of Margolis in the implementation of tax planning activities. To keep track of the client's tax planning activities and the attendant transactions, Margolis and his employees utilized their so-called system accounting. System accountings were primarily maintained on the cash basis and constituted a chronological history of the transactions of a client within the system. System accounting was devised to enable the Margolis office and the client to determine the client's cash position within the system at any particular time. ”

“ This Agreement is entered into this Fourth day of October, 1971, by and between WERNER ERHARD, an individual, hereinafter referred to as SELLER and PRESENTACIONES MUSICALES, SA, a Panamanian corporation, hereinafter referred to as BUYER.
RECITALS
(1) SELLER has originated certain processes, methods and procedures which stimulate the growth and expansion of human mental powers. Unless properly developed, such mental growth and expansion would, in the normal course of human life, remain dormant; (2) SELLER desires to dispose of his interest in these processes, methods and procedures ”

“ PMSA hereby assigns, sets over and sells to WELBEHAGEN all of PMSA's right, title and interest in and to est. The parties recognize that the value of est must at all times be considered speculative. To this date, the exploitation of est in an economic sense has been largely limited to the United States of America. All economic data with respect to such activities of Erhard Seminars Training, Inc., have been made available to WELBEHAGEN and are warranted by PMSA to be true and correct in all respects. ”

“ The necessary relationship does not exist here. Petitioner's reliance on the so-called employment contract to qualify this deduction as a business expense is unpersuasive. Moreover, petitioner's effort to categorize this expense as a payment under a medical plan of the employer (see section 105 (b) ) is simply not supported by the record. Petitioner's argument that Erhard would not have accepted employment unless his wife and children received assurance of adequate medical care provides no support for the deductibility of this expenditure. ”

“ The purported benefits to petitioner are simply too incidental and tenuous to cause her expenses to qualify as deductible business expenses. We hold that petitioner is not entitled to a business expense under section 162 (a) in the taxable year ended April 30, 1974 for any expenses incurred by Ellen on the trip to Europe in excess of the amount allowed by respondent.
7. RENTAL PAYMENTS In 1972 petitioner rented space for its business operation in the property hereinafter referred to as the Franklin House in San Francisco, California from one Ann Sheehan. ”

“ If such employment or services are to be undertaken by EMPLOYEE during a time in which he is not under the exclusive control of EMPLOYER, EMPLOYER must give its written consent prior to EMPLOYEE's agreement to engage in such services. ”

“ EMPLOYEE shall have a reasonable opportunity to approve all services required of him by EMPLOYER and EMPLOYEE may refuse to perform any services which are not in keeping with his competence, position and personal dignity in the area of mind expansion and growth of mental awareness. ”

“ EMPLOYER requires EMPLOYEE to maintain a private office with stenographic help, office equipment, supplies and such other facilities and services that are equitable to his position and adequate for the performance of his duties. EMPLOYER shall pay all expenses, including rent and property taxes if required, incurred in such private office. (11) EMPLOYEE is authorized to incur reasonable business expenses for promoting, including expenditures for entertainment, gifts and travel. ”

“ EMPLOYEE agrees to execute at any time any and all documents of any kind and nature whatsoever which EMPLOYER may request in order to confirm and enforce the rights of EMPLOYER to the processes, methods and presentations as more specifically defined herein as they had been transferred to EMPLOYER.
(26) No amendment or variation of the terms of this Agreement shall be valid unless made in writing and signed by the EMPLOYEE and the fully authorized representative of the corporation. ”

“ ERHARD does not now nor will he at any time in the future seek compensation or damages from PMSA or any other entity or individual related to PMSA for any compensation arising under the Employment Contract. Included shall be all claims which Erhard may have, whether or not he has knowledge of them as of this date, with reference to medical reimbursement, automobile expenses or costs, private office provisions, or other business expenses included or beyond Paragraphs 8, 9, 10, 11 or 12 of the Employment Contract of 4 October 1971. This acknowledgment shall extend to Twine as the prior employer. ”

“ Subsequent to June 1971 the officers of International Aesthetics were located at 14612 Big Basin Way, Saratoga, California which was the address of the Margolis office. World Entertainers, a Bahamian corporation formed under instructions from Margolis, acquired 50 shares of capital stock originally issued by International Aesthetics. On December 14, 1971 the stock was acquired by Associated Arts from World Entertainers. The books of International Aesthetics reflect that Associated Arts made a capital contribution of $2,050,000. ”

“ EMPLOYER shall pay to EMPLOYEE, as salary, Two Thousand Five Hundred Dollars ($2,500.00) per month for the duration of this Agreement. Said compensation shall be reviewed and discussed annually on each October 4 or on such other date as may be mutually agreed upon by the parties hereto and said amount may be increased or decreased at any such meeting for the ensuing yearly term but shall at no single meeting be increased or decreased more than Five Hundred Dollars ($500.00) per month. Each party agrees to and guarantees a good faith participation in said annual compensation discussions. ”

“ BUYER represents that it shall use and develop said processes, methods and procedures in a competent business fashion and use all reasonable effort to maximize gross income from their use and development. ”

“ PMSA recognizes and acknowledges that EST has made a substantial contribution to the development of License and that the future of License everywhere will necessarily be enhanced by the continued viability and success of EST. PMSA will attempt to continuously involve EST in the growth of License all over the world. ”

“ EMPLOYEE shall make himself available from time to time for necessary promotional activities at the request of EMPLOYER and at the sole expense of EMPLOYER, provided only that time spent in such promotional or publicity activities shall be charged against the total time required by EMPLOYEE on this agreement. ”

“ The parties define the est Body of Knowledge as consisting of anything and everything developed by Werner Erhard as carried forward and communicated by Erhard Seminars Training, Inc., a California corporation, from October of 1971 to and including August 31, 1975. ”

“ In fact Erhard Seminars Training is starting totally new, and creating itself out of a vacuum in the first instance.' This motion was seconded by Director REINHARDTSEN. After discussion was held among the Directors concerning the motion, on the affirmative vote of a majority of the Directors present, it was resolved that the Saratoga Restaurant Equipment Company, Inc. has no relationship in purpose or function to that of Erhard Seminars Training, Inc. and Erhard Seminars Training, Inc. is creating itself totally free from any of the Saratoga Restaurant Equipment Company, Inc. ”

“ The compensation to be paid to EMPLOYEE under this Agreement shall not include payment for his services in other than a person-to-person, face-to-face dissemination of the processes, procedures and methods and promotion thereof; and, EMPLOYEE shall receive Ten Percent (10%) of all income from publication, recording, television, motion pictures and any other related dissemination that does not involve a person-to- person, face-to-face presentation. ”

“ This is a License, and WELBEHAGEN does not retain any direct or indirect control of est. est shall, however, adopt and maintain employment policies which are responsible and which convey to the general public the sense of integrity that is consistent with the Body of Knowledge. ”

“ The evidence is extremely vague as to the number of recipients of gifts in India. Ingrasci could not recall the disposition of some items of significant value which were purchased in India. We are unable to find on the basis of this unsatisfactory record that the gifts were intended for or served any business purpose. ”

“ The newly formed corporation continued to give the standard training formerly given by petitioner and also continued the communication workshops, relationships programs, graduate reviews, childrens' programs and prison trainings formerly conducted by petitioner. Petitioner ceased its various business activities (including the standard training) and, upon changing its name to Twine late in 1975, it did not retain any of the EST employees or officers. Margolis became president of Twine. ”