Best of TaxLetter: Mark Eden Bust Developer

Remember the "Mark Eden Bust Developer"? Other Mark Eden products included Trim Jean (inflatable shorts to be used for slimming the hips), Astro Jogger, Slim-Skins, Sauna Belt Waistline Reducer, Vacuum Pants, "nutritionally fortified junk food", and the very successful Cambridge Diet.

The Postal Service sued Mark Eden, alleging that the bust developer was ineffective and the advertising was fraudulent. The Service won a $1.1 million settlement. The Cambridge Diet was investigated by the Food and Drug Administration, Federal Trade Commission, California Department of Public Health, and various law enforcement agencies.

Mark Eden owned an Excalibur roadster, Rolls Royce, Mercedes, Lincoln, Oldsmobile, Porsche, LTD Ford station wagon, and a Cessna airplane. Mark Eden was a corporation owned by Jack and Eileen Feather. Neither Jack nor Eileen individually owned any vehicles. Nor did they own a home. In 1973, the corporation purchased a 19-room oceanside house in Pebble Beach, California for $475,000.

IRS sought to impose an accumulated earnings tax. But the Tax Court ruled that the $1.1 million settlement with the Postal Service, and the capital required for the Cambridge Diet (over $5 million for inventory alone) entitled them to accumulate those earnings for the reasonable needs of the business. It disallowed 80% of most of the expenses associated with the Pebble Beach house. However, the Court allowed all the automobile expenses because IRS only questioned the Excalibur, which was proven strictly business. (No. 58)