                        T.C. Memo. 1997-322



                      UNITED STATES TAX COURT



       ZEEMAN MANUFACTURING COMPANY, INC. AND SUBSIDIARIES,
    Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 25078-95.              Filed July 14, 1997.




     David D. Aughtry and Donald P. Lancaster, for petitioner.

     Bonnie L. Cameron, for respondent.



                        MEMORANDUM OPINION

     WELLS, Judge:   The instant case is before the Court on

respondent's motion pursuant to Rule 142(e) to shift the burden

of proof to petitioner to the limited extent set forth in section

534(a)(2).1

1
     Unless otherwise indicated, all section and Code references
                                                   (continued...)
                                 - 2 -

     In the notice of deficiency, respondent determined

deficiencies in and penalties on petitioner's Federal income tax

as follows:

       Taxable                                 Accuracy-related
     Year Ending                                   Penalties
       June 30              Deficiency             Sec. 6662

        1991                 $225,794              $45,159
        1992                  318,517               63,703
        1993                  379,025               75,805

     Petitioner has its principal place of business in Chamblee,

Georgia.

     Prior to the issuance of the notice of deficiency and in

accordance with section 534(b), respondent issued to petitioner a

Notice of Intent to Assert Accumulated Earnings Tax stating that

respondent intended to issue a notice of deficiency for the tax

on accumulated earnings pursuant to section 531.     Petitioner

submitted a timely statement pursuant to section 534(c).

Subsequently, respondent issued a notice of deficiency in which

respondent determined, inter alia, that petitioner is liable for

the accumulated earnings tax pursuant to section 531 for

petitioner's taxable years ended June 30, 1991, 1992, and 1993.

Petitioner filed a petition with this Court, and respondent filed

an answer.     After the instant case was calendared for trial,

respondent filed the instant motion to shift the burden of proof.

1
 (...continued)
are to the Internal Revenue Code as in effect for the taxable
years before the Court, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 3 -

     Either party may, pursuant to Rule 142(e), move the Court to

fix the burden of proof, pursuant to section 534, on the issue of

the reasonableness of petitioner's accumulations.   Respondent has

so moved, and petitioner has filed a response to that motion.

The Court concludes that it is appropriate to decide the instant

motion prior to trial.   Rutter v. Commissioner, 81 T.C. 937, 939

(1983); Chatham Corp. v. Commissioner, 48 T.C. 145, 146 (1967).

     Sections 531 and 532 impose an accumulated earnings tax on

any corporation that is availed of for the purpose of avoiding

income tax with respect to its shareholders by permitting

earnings and profits to accumulate beyond the reasonable needs of

its business.   Section 533(a) provides that, unless the

corporation proves to the contrary by the preponderance of the

evidence, the fact that earnings and profits are permitted to

accumulate beyond the reasonable needs of the business shall be

determinative of the purpose to avoid the income tax with respect

to shareholders.

     Petitioner contends that it does not owe any accumulated

earnings tax because its reasonably anticipated business needs

exceeded its accumulated earnings and profits.   The primary issue

in any trial of the merits of the instant case will be the

reasonableness of petitioner's claimed business needs.     If those

needs exceed petitioner's accumulated taxable income (after

adjustments pursuant to section 535(b)), petitioner will owe no

accumulated earnings tax.   Secs. 531, 535(a).   If, however, those
                                 - 4 -

needs do not exceed such taxable income, petitioner nonetheless

will be able to reduce its accumulated taxable income by the

amount of any reasonable accumulations.    Sec. 535(a), (c).

     If, pursuant to section 534(c), a taxpayer submits a

statement of the grounds (together with facts sufficient to show

the basis thereof) on which the taxpayer relies to establish that

all or any part of its earnings and profits have not been

permitted to accumulate beyond the reasonable needs of its

business (section 534(c) statement or statement), respondent

bears the burden of proving the grounds set forth in the

statement.   Sec. 534(a)(2).   Respondent, however, bears the

burden of proof in such a case

     only with respect to the relevant ground or grounds set
     forth in the statement submitted by the taxpayer, and
     only if such ground or grounds are supported by facts
     (contained in the statement) sufficient to show the
     basis therof [sic]. [Sec. 1.534-2(a)(2), Income Tax
     Regs.]

The burden of proof remains on the taxpayer, inter alia, if the

taxpayer submits a statement "but the ground or grounds on which

the taxpayer relies are not relevant to the allegation or, if

relevant, the statement does not contain facts sufficient to show

the basis thereof."   Sec. 1.534-2(b)(2), Income Tax Regs.

     Accordingly, the only issue we decide is the sufficiency of

the statement submitted by petitioner.2   In Bittker & Eustice,

2
     Petitioner contends that respondent bears the burden of
proof as to the accumulated earnings issue in its entirety. In
                                                   (continued...)
                              - 5 -

Federal Income Taxation of Corporations and Shareholders, par.

7.08[2], at 7-31 (6th ed. 1994), the authors comment that a

section 534(c) statement:

     must constitute more than mere notice of an intent to
     prove the reasonableness of the accumulation. Rather,
     the taxpayer must show its hand by stating clearly and
     specifically the grounds on which it will rely to
     quantify and prove reasonable business needs and by
     setting out the facts (not the evidence but more than
     conclusions of law) that, if proven, support the
     alleged business needs for the accumulation.
     [Gustafson's Dairy, Inc. v. Commissioner, T.C. Memo.
     1995-11 (quoting substantially same passage in 5th ed.
     (1987)); Hughes, Inc. v. Commissioner, 90 T.C. 1, 17
     (1988) (substantially same language in 4th ed. (1979));
     Rutter v. Commissioner, supra at 939 (same).]

Although the taxpayer's statement must reveal its litigation

theory to respondent, the statement must outline only the basic


2
 (...continued)
the notice of deficiency, respondent used the Bardahl calculation
that appeared in respondent's Notice of Intent to Assert
Accumulated Earnings Tax (Notice of Intent). After the Notice of
Intent was sent but before the notice of deficiency was sent,
respondent's agent agreed to certain corrections to the Bardahl
calculation. Accordingly, citing the Helvering v. Taylor, 293
U.S. 507, 515 (1935) line of cases, petitioner argues that the
notice of deficiency is excessive and erroneous and that,
therefore, respondent bears the burden of proof as to all matters
therein.
     We disagree. In the instant case, for purposes of the
notice of deficiency, respondent used a Bardahl computation in
the determination of petitioner's tax liability. Generally, we
do not look behind a notice of deficiency to examine the evidence
used or the propriety of the Commissioner's motives,
administrative policies, or procedures involved in making the
determinations in the notice. Proesel v. Commissioner, 73 T.C.
600, 605 (1979); Greenberg's Express, Inc. v. Commissioner, 62
T.C. 324, 327 (1974). Accordingly, except to the limited extent
we decide otherwise herein, the burden of proof remains on
petitioner to prove that respondent's determinations are
erroneous. Rule 142(a).
                               - 6 -

facts necessary to notify respondent of the bases of the grounds

asserted.   Soros Associates Intl., Inc. v. Commissioner, T.C.

Memo. 1982-79.   The taxpayer is not required to state facts

sufficient to meet a burden of proof which it may never have.

Id.

      The Court of Appeals for the Fifth Circuit3 has stated:

      We think §534's language indicates that the statement
      simply serves a notice function. Whether the "grounds"
      divulged in the statement subsequently prove convincing
      is irrelevant to this function. * * * But just as the
      statement is not supposed to be legally sufficient on
      the question of definiteness, neither is it supposed to
      be a substitute for testimony at trial. [Motor Fuel
      Carriers, Inc. v. Commissioner, 559 F.2d 1348, 1352
      (5th Cir. 1977), revg. T.C. Memo. 1975-296; citations
      omitted.4]

To "show its hand" sufficiently, the taxpayer must provide

details, where appropriate, with respect to specific amounts

needed to be expended for reasonable business needs "so that

3
     In Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir.
1981), the Court of Appeals for the Eleventh Circuit, the circuit
to which any appeal of the instant case would lie, adopted as
binding precedent all of the decisions of the Court of Appeals
for the Fifth Circuit rendered prior to the close of business on
Sept. 30, 1981.
4
     Respondent argues that petitioner relies on Motor Fuel
Carriers, Inc. v. Commissioner, 559 F.2d 1348 (5th Cir. 1977),
revg. T.C. Memo. 1975-296, as holding that the Court of Appeals
for the Fifth Circuit requires a lower standard than other courts
in deciding the sufficiency of sec. 534(c) statements. We
disagree. Petitioner, contrary to respondent's assertion, cites
Motor Fuel Carriers, Inc. for the proposition that, for purposes
of shifting the burden of proof pursuant to sec. 534, a sec.
534(c) statement is subject to a lower standard than the
substantive inquiry at trial pursuant to sec. 533(a).
Accordingly, we conclude that respondent’s argument is without
merit.
                                - 7 -

respondent is not required to guess as to what they may be."

Hughes, Inc. v. Commissioner, 90 T.C. at 18-19.

     If petitioner's statement with respect to a particular

ground provides sufficient facts to support an assertion that

some accumulation was reasonable but fails to provide sufficient

facts to support the full amount of the accumulation, then we

will impose the burden of proof on respondent only to the extent

the supporting facts are sufficiently disclosed.    Petitioner

bears the burden of proof for amounts in excess of those

supported in the statement.    Rule 142(a); Soros Associates Intl.,

Inc. v. Commissioner, supra.    Additionally, petitioner bears the

burden of proof with respect to any grounds or amounts not

mentioned in the statement.    Sec. 1.534-2(a)(2), Income Tax Regs.

     For purposes of the accumulated earnings tax, the term

"reasonable needs of the business" includes the "reasonably

anticipated needs of the business".     Sec. 537; Technalysis Corp.

v. Commissioner, 101 T.C. 397, 409 (1993).    If the facts

disclosed in the statement are sufficiently substantial,

material, definite, and clear to permit respondent to prepare for

trial, the statement will be deemed sufficient as to such

grounds.   J.H. Rutter Rex Manufacturing Co. v. Commissioner, 853

F.2d 1275, 1283 (5th Cir. 1988), affg. in part, revg. in part and

remanding T.C. Memo. 1987-296; see also Thompson Engg. Co. v.

Commissioner, 80 T.C. 672, 693 (1983), revd. on another issue 751

F.2d 191 (6th Cir. 1985).
                                - 8 -

     To justify an accumulation of earnings and profits, a

taxpayer must (1) indicate that the future needs of the business

require such accumulation, and (2) have specific, definite, and

feasible plans for the use of such accumulation.      Sec.

1.537-1(b)(1), Income Tax Regs.   An accumulation need not be used

immediately, nor must the plans for its use be consummated within

a short period after the close of the taxable year, provided that

such accumulation will be used within a reasonable time depending

upon all the facts and circumstances relating to the future needs

of the business.   Id.   Where the future needs of the business are

uncertain or vague, where the plans for the future use of an

accumulation are not specific, definite, and feasible, or where

the execution of such a plan is postponed indefinitely, an

accumulation cannot be justified on the grounds of reasonably

anticipated needs of the business.      Id.   At trial, respondent may

carry the burden of proof by establishing, e.g., that no estimate

in fact was made as of the close of a particular fiscal year, or

that the estimate was disproportionate to what was reasonably

necessary for petitioner's business, or that petitioner's

asserted need was too speculative to be reasonably anticipated.

See Yates Petroleum Corp. v. Commissioner, T.C. Memo. 1992-146.

     For purposes of ruling on the instant motion and to

facilitate our analysis, we accept the grounds and facts asserted

in petitioner's statement as if they are true; however, in

deciding the instant motion, we are not called upon to make
                               - 9 -

findings of fact in the instant case.   Chatham Corp. v.

Commissioner, 48 T.C. at 147; Soros Associates Intl., Inc. v.

Commissioner, supra.

     Petitioner is engaged primarily in clothing manufacturing

and retailing.

     During 1932, the predecessor Zeeman clothing company was

founded by Harold Zeeman, Sr., in Allentown, Pennsylvania, as a

manufacturer and wholesaler of men's clothing.    At that time, the

manufacturing facilities consisted of only a cutting room on the

fourth floor of a building.   This cut work was sent to

contractors in Philadelphia, Pennsylvania, for assembly and

thereafter sold in retail stores.   When retailers could not pay

their bills, Harold Zeeman, Sr., and his brothers Edward and

Jessie began selling directly to the public from their cutting

room.   As the business thrived, the company opened a retail store

on the ground floor.   Subsequently, similar factory stores were

opened in Harrisburg, Pennsylvania, and Richmond, Virginia.

During the 1940's, wholesale stores were opened in California.

     After 1949, Harold Zeeman, Sr., and his son, Harold Zeeman,

Jr., (Mr. Zeeman) started a wholesale sport coat business.    A

sales force was hired, a sales office was opened in New York

City, and a substantial business was developed.   During 1964,

when labor problems arose in Allentown, Mr. Zeeman moved

petitioner's entire manufacturing operation to Gainesville,

Georgia.   A retail store was soon opened at the factory site.
                              - 10 -

During 1965, a 14,000-square foot building was erected in

Chamblee, Georgia, which eventually housed the company's

headquarters, the central warehouse, and a new retail store.

     During 1969, a new store was opened in New Orleans,

Louisiana.   During 1970, stores were opened in Memphis and

Nashville, Tennessee.   During 1973, stores were opened in Denver,

Colorado, St. Louis, Missouri, and San Antonio, Houston, and

Dallas, Texas.

     During 1974, the wholesale business was discontinued, and

the emphasis was shifted to retail store expansion with the

opening of additional stores through the mid-1980's in New

Mexico, Texas, North Carolina, Louisiana, Oklahoma, and Georgia.

Currently, petitioner has stores in 31 locations throughout the

United States.

     During 1986 and 1987, plans were made to move the

Gainesville manufacturing plant offshore.    During 1987, a site

was chosen in Alajuela, Costa Rica.    Assembly work in the

Gainesville facility was discontinued during 1987, with only

cutting and raw material inventory being kept there.     Production

of suits, sport coats, and slacks began in Costa Rica during

1988, and it steadily increased to the current level of over

10,000 suits per month.

     Over its years of operation, petitioner has shown impressive

growth and success, which petitioner's management attributes to

conservative financial policies, forbearance from debt so that
                              - 11 -

petitioner may avoid interest and grow from within, solid banking

and supplier relationships, and controlled expansion and

improvement in a risky business.    Petitioner does not borrow

money and has not done so since 1965.    Petitioner's policy is to

finance current and future needs from within.

     In its statement, petitioner asserts that it has not

permitted its earnings and profits to accumulate beyond the

reasonable needs of its business.    Petitioner argues, to the

contrary, that its accumulated earnings and profits are

inadequate to meet its future business requirements.    Petitioner

states that it reasonably accumulated $23,002,264 in taxable year

1991, $23,257,978 in taxable year 1992, and $24,218,583 in

taxable year 1993.   We address individually each of the ten

grounds asserted by petitioner as reasonable business needs.

Respondent has made no concessions as to any grounds.

     1.   Working Capital Needs

     In its statement, petitioner sets forth working capital

needs of its business as a ground that it reasonably accumulated

$7,418,264 in taxable year 1991, $7,673,978 in taxable year 1992,

and $8,634,583 in taxable year 1993.    Petitioner calculated such

needs using the average business cycle method developed in

Bardahl Manufacturing Corp. v. Commissioner, T.C. Memo. 1965-200

(the Bardahl formula).

     Respondent argues that petitioner used an unconventional

method of computing the Bardahl formula and that petitioner's
                               - 12 -

computation contains mathematical errors.   Respondent also

contends that petitioner did not provide the source of the

financial information included in the Bardahl computation.

Alternatively, respondent argues that, as certain amounts in

petitioner's Bardahl computation do not correspond with the

numbers in the Dun & Bradstreet credit compilation attached to

the section 534(c) statement, petitioner's "conflicting"

information does not provide "specific amounts" needed to be

expended for business needs.

     In Gustafson's Dairy, Inc. v. Commissioner, T.C. Memo. 1995-

11, we stated that a taxpayer will have made a sufficient

disclosure of its Bardahl computation if the taxpayer adequately

states the formula relied upon for determining an anticipated

need, sufficient data to use the formula, and the end result of

the formula.   In its section 534(c) statement, petitioner has

stated a formula, furnished the data to use the formula,5 and

calculated an end result of the formula for its taxable years

ended 1991 through 1993.6   For the Bardahl computation for each

taxable year, petitioner provided, inter alia, the cost of goods


5
     We note that, since the filing of the instant motion and the
supporting memoranda of law thereunder, the parties have agreed
to certain changes in the Bardahl computation. We, however,
address only the sec. 534(c) statement and the Bardahl
computation included therein. Sec. 534(a)(2); sec. 1.534-
2(a)(2), Income Tax Regs.
6
     Respondent cites no specific mathematical errors, and we
find no such errors in petitioner's Bardahl computation.
                               - 13 -

sold (including the calculations therefor), inventories,

inventory turnover, sales, accounts receivable, accounts

receivable turnover, merchandise purchased, accounts payable,

accounts payable turnover, and days in adjusted operating cycle.

Accordingly, we conclude that petitioner has made a sufficient

disclosure as to the accumulation for working capital needs based

upon the Bardahl formula.

     We believe that respondent's arguments concerning

petitioner's particular Bardahl formula and computation, the

source of petitioner's financial information in its Bardahl

computation, and the discrepancies between petitioner's Bardahl

computation and the Dun & Bradstreet credit compilation are

arguments to be interposed at trial and need not be addressed in

deciding the instant motion.   Accordingly, we hold that, for

purposes of section 534(c), petitioner has made a sufficient

disclosure of the formula and data it relies upon to show its

working capital needs.   Gustafson's Dairy, Inc. v. Commissioner,

supra.   Consequently, we hold that respondent bears the burden of

proof as to the working capital needs of petitioner's business to

the extent of $7,418,264 for taxable year 1991, $7,673,978 for

taxable year 1992, and $8,634,583 for taxable year 1993.    We note

that respondent may carry the burden of proof at trial by

establishing, e.g., that the formula itself is unreasonable or

the data are inaccurate or unrealistic.   Id.
                              - 14 -

     2.    Expansion of Costa Rican Manufacturing Facility

     Petitioner's next ground set forth in its statement is that

it needed to accumulate $1,800,000 during each of the taxable

years in issue for building a second manufacturing facility in

Costa Rica.   During 1988, petitioner constructed a 20,000-square

foot factory building in Costa Rica.    The total cost of

purchasing, building, outfitting, and installing fixtures in the

facility and of training the workforce exceeded $1 million.

     Production in Costa Rica proved quite profitable because the

labor and operating costs were lower than in Gainesville,

Georgia.   Accordingly, during 1990 and 1991, petitioner embarked

upon a long-range plan to expand production in Costa Rica.

Additionally, petitioner determined that it required extra

manufacturing space to meet its current needs.

     On January 13, 1992, the petitioner's board of directors met

and memorialized its plan to build a second manufacturing

facility in Puntarenas, Costa Rica.    At the meeting, the board

adopted the following resolution:

     That the board give serious consideration to the
     investment in a second manufacturing facility in Costa
     Rica in the newly established Free Zone Industrial Park
     in the city of Puntarenas, Costa Rica. The government
     of Costa Rica announced substantial labor subsidies to
     companies that open plants in Puntarenas where much
     unemployment exists. Our company requires extra
     manufacturing space to fill the needs of our current
     and future stores.
          Although it would require a large outlay of money
     to build, equip, and provide goods in process in the
                             - 15 -

     new plant, it was agreed by the board that the return
     in the future would be worth this investment.
          It was agreed by the board that surplus company
     funds should be earmarked for the above project.

     In its section 534(c) statement, petitioner states that "the

Board decided to earmark all surplus for this expansion" but that

management estimated the cost of building and bringing on line

the second facility as well in excess of $1,800,000, based upon

the cost of the first facility.   Petitioner provides the

following breakdown of costs for building and outfitting the

second facility:

       Building                              $300,000
       Machinery                              580,000
       Land                                   100,000
       Initial inventory                      600,000
       Hiring and training work force         220,000
            TOTAL                           1,800,000

     Respondent argues that the minutes of the board of directors

meeting on January 13, 1992, do not establish an intent by

petitioner to begin construction of a new manufacturing facility.

Additionally, respondent argues that petitioner does not mention

any actual expansion that has been implemented, or,

alternatively, that petitioner's proposed or pending construction

expansion plans are not set forth and that petitioner offers no

explanation for the delay in completion.   Respondent contends

that the square footage of extra manufacturing space is not

stated and that petitioner neglects to name any real estate

agents, government officials, or architectural firms that it has

contacted.
                                - 16 -

     We hold that petitioner has set forth sufficient details in

its statement to show the basis of its grounds for accumulating

earnings in the amount of $1,800,000 to build a second facility.

Petitioner's grounds support the alleged business needs for the

accumulation and provide a sufficient basis for respondent to

prepare for trial.   We conclude that respondent's arguments

concerning the details of constructing a second facility should

be interposed at trial and need not be addressed in deciding the

instant motion.   Accordingly, we conclude that, as to the second

ground presented by petitioner, the burden of proof is on

respondent.

     3.   Retail Expansion To Accommodate Production Expansion

     Petitioner's next ground is that it reasonably accumulated

earnings of $1 million for each of the taxable years in issue for

the retail expansion required to accommodate the increased

production from the first facility and the planned, second Costa

Rican manufacturing facility.    Petitioner states that, consistent

with its usual practice, petitioner decided to finance the

expansion through its surplus earnings instead of borrowed funds

and points to its corporate minutes dated August 13, 1992, where

the directors resolved "That every effort be made to search for

and locate new sites to build free standing stores to utilize the

increased production of the factory in Costa Rica."   Petitioner

states that it immediately began to locate sites to accommodate
                              - 17 -

the increased production and that it is in continuous contact

with real estate agents with potential store locations.

     On May 15, 1993, the directors met to discuss long-term

domestic expansion plans.   The minutes of that board meeting

provide in relevant part:

          The Chairman suggested that because of increased
     production of suits, sport coats, and slacks from the
     Company plant in Costa Rica we should establish a long
     range plan to open three or four new retail outlets per
     year and to close any unprofitable retail outlets over
     the years.

          Bruce Zeeman estimated that it would take
     approximately $500,000 per store to build, sign,
     fixturize and inventory each new store if they are
     Company owned buildings. If new stores open in leased
     buildings, the estimated cost would be $150,000 to
     fixturize, sign, and inventory each store plus about
     $36,000 rent, taxes, and insurance.

          In order to fund the above expansion plans, it was
     decided that all Board Members should plan to use about
     $1,000,000 of earned surplus per year if and when
     feasible locations can be located. We will actively
     work with real estate reps in new markets as well as
     markets we are currently in.

          Mr. Jody Marchman and Harold and Barry Zeeman will
     make several trips per year to locate sites for these
     stores.

Petitioner states that, recently, stores have opened in Columbia,

South Carolina, Charlotte, North Carolina, Austin, Texas, and

Nashville, Tennessee.

     Respondent argues that the resolution from the August 13,

1992, board of directors meeting is vague, general, and

indefinite.   Respondent argues that the resolution does not state
                              - 18 -

where the stores will be located, does not provide a timeframe in

which to act, and does not set forth financial data.

     Similarly, respondent argues that the minutes from the May

13, 1993, board of directors meeting are not specific and do not

provide concrete and definite plans for the accumulation.

Respondent argues that petitioner provided no evidence that a

plan was ever finalized, no details on the long-range plan, no

schedule for openings and closings of stores, no specific cities

to target, no criteria used to determine that a particular retail

outlet was unprofitable, and no facts regarding the number of

stores to be closed.   Respondent argues that petitioner did not

provide the names of real estate representatives or firms that it

allegedly met.   As to the 4 stores opened recently by petitioner,

respondent argues that petitioner sets forth neither the costs of

opening those new stores nor the dates that the stores opened.

Respondent argues that petitioner has provided no evidence

regarding identification of sites for new stores, no projection

of the amount of funds needed to acquire new stores, and no

timetable for expansion into new stores.

     We hold that petitioner has not disclosed in its statement

facts that are sufficiently substantial, material, definite, and

clear to permit respondent to prepare for trial.   Petitioner

provided insufficient basis for its assertion of its expansion

plans for the opening of new stores and insufficient basis for

its assertion that, during each of the years in issue, its
                              - 19 -

management decided to accumulate $1 million for that purpose.

Accordingly, we hold that the burden of proof remains with

petitioner as to the third ground.

     4.   Signage Project

     Petitioner states that, during each of its 1992 and 1993

taxable years, it reasonably accumulated $484,000 to cover the

anticipated costs of replacing the signs for stores of its wholly

owned subsidiary Barry Manufacturing Company.     Petitioner states

that, during 1993, Barry Zeeman instituted a new corporate logo

requiring new signs to be erected on its 38 different stores.

Petitioner states that it committed to fund the new signage

project and received quotes from various sign companies totaling

approximately $484,000 to complete the project and that its

earnings were earmarked for the cost of the new signs.

     Respondent argues that petitioner's statement does not

furnish detailed, clear, and specific information about the

signage project.   Respondent argues that petitioner failed to

include the names of the various sign companies contacted and any

quotes or bids from the companies.     Additionally, respondent

argues that petitioner did not include facts regarding when the

project was to be completed or an explanation why there was a

delay in completion.   Finally, respondent argues that

petitioner's signage project includes 38 stores, which

contradicts petitioner's list of 31 stores elsewhere in the

statement.
                               - 20 -

     We hold that petitioner set forth in its statement a

sufficient basis for accumulating earnings in the amount of

$484,000 for its anticipated signage project for its 1992 and

1993 taxable years.   Petitioner has provided sufficient details

to allow respondent to prepare for trial on this ground.    We

conclude that respondent's arguments concerning petitioner's

anticipated signage project should be interposed at trial and

need not be addressed in deciding the instant motion.

Accordingly, we hold that respondent has the burden of proof as

to the fourth ground to the extent of $484,000 for petitioner's

1992 and 1993 taxable years.

     5.   Maintenance of Favorable Banking Relations

     Petitioner states that it reasonably accumulated $1 million

during each of the years in issue to maintain a stated balance in

its operating account.   Petitioner states that it maintained the

minimum balance so that service and transaction charges would be

waived, which petitioner estimates were on the order of $36,000.

In its statement, petitioner included a letter from Trust Company

Bank of Atlanta, dated April 26, 1995, which states that "the

average collected balance required to be maintained in the above

referenced operating account to cover various analysis (service)

charges was $1,000,000."   Petitioner states that, during the

years in issue, the average required balance fluctuated between

$1,000,000 and $1,600,000.
                              - 21 -

     Respondent argues that petitioner's exhibit does not support

its contention as to its taxable years 1991 through 1993.

Additionally, respondent argues that petitioner provides

conflicting facts; viz, petitioner's Dun & Bradstreet report:

(1) States that, as of September 9, 1992, petitioner's bank was

NationsBank of Georgia, NA, but that, as of October 9, 1993,

petitioner's bank was Trust Company of Georgia, and (2) lists

petitioner's account averages as "moderate 5 figures."

     We agree with respondent and hold that petitioner has not

disclosed in its statement a sufficient basis to justify its

accumulation for the purpose of maintaining favorable banking

relations.   Accordingly, we hold that the burden of proof remains

with petitioner as to the fifth ground.

     6.   Maintenance of Favorable Supplier Relationships

     Petitioner states that it reasonably accumulated $10 million

during each of the years in issue to maintain a 4-A credit rating

with Dun & Bradstreet.   Petitioner states that, during the years

in issue, petitioner's management "made a determination to

continuously strive for a 4-A credit rating" from Dun &

Bradstreet, which requires a net worth of at least $10 million.

Additionally, petitioner states that the accumulation of capital

has enabled petitioner to maintain a 4-A credit rating for the

past several years, which it views as a distinct advantage in an

industry known for slow paying manufacturers and retailers.
                                - 22 -

     Petitioner states that, because of its credit rating, it

receives numerous merchandise and fabric offers on favorable

credit terms.   Petitioner also states that it saves several

hundred thousand dollars as a result of discounts on its

purchases.   Petitioner names several suppliers that have given

petitioner favorable credit terms because of petitioner's credit

rating.   Petitioner states that, because of its credit rating, it

is approached by suppliers several times per month with excess

merchandise at reduced prices.    Additionally, petitioner states

that real estate agents contact petitioner with business

opportunities and cites an instance when, during 1993, petitioner

was contacted by the owner of some real estate.

     Respondent argues that the specifics concerning the

"favorable relationships" are not set forth.    Respondent argues

that petitioner did not indicate a monetary amount that was saved

because of its credit rating.    Respondent also argues that

petitioner did not present any attempts by management to quantify

the impact of obtaining and maintaining a 4-A credit rating.

Additionally, respondent argues that the Dun & Bradstreet report

that was attached to petitioner's statement presents conflicting

information.

     We agree with respondent.    Accordingly, we hold that

petitioner has not disclosed in its statement sufficient details

to justify petitioner's asserted management decision to

accumulate $10 million during its taxable years in issue in order
                               - 23 -

to earn a 4-A credit rating.    The burden of proof therefore

remains with petitioner as to the sixth ground.



     7.    Technology

     Petitioner states that, during each of its 1992 and 1993

taxable years, it reasonably accumulated $300,000 to purchase a

new computer system.    Petitioner states that, during 1992, it

adopted a plan to purchase a new system, which is conservatively

estimated to cost $300,000.

     Respondent contends that petitioner has not provided the

names of companies that it met with to purchase a new system or

any bids that it may have received.     Additionally, respondent

argues that petitioner does not state the type of computer system

that it needs or the terms of the plan it adopted during 1992.

     We hold that petitioner has not disclosed in its statement

sufficient details to permit respondent to prepare for trial.

Petitioner provided the cost of the computer system that was

implemented during 1991 through 1993 (which became obsolete) but

did not indicate any specific plans for the purchase of a new

computer system.   Moreover, petitioner did not provide any

details showing that petitioner's management decided during its

1992 and 1993 taxable years to accumulate $300,000 for that

purpose.   Accordingly, we hold that the burden of proof remains

with petitioner as to the seventh ground.
                              - 24 -

     8.   Store Failure

     Petitioner states that it reasonably accumulated $200,000

during each of the years in issue to cover the losses and

relocation expenses relating to store closings.   Petitioner

states that $200,000 allows for 2 store closings per year.

Petitioner states that the turnover of its stores is somewhat

high and that, because of demographic changes, it was forced to

close stores in, and to relocate from, Salt Lake City, Utah,

Phoenix, Arizona, and Arlington, Texas.

     Respondent argues that petitioner's statement is deficient

because it does not explain how the $200,000 reserve amount was

calculated and fails to provide the dates that the stores were

closed and/or relocated.   Respondent also argues that petitioner

fails to provide the decrease in the affected stores' sales and

the losses sustained by each store because of its closing or

relocation.   Additionally, respondent argues that petitioner does

not identify the demographic changes that lead to store closings.

     We hold that petitioner has not disclosed in its statement

sufficient details to permit respondent to prepare for trial.

Although petitioner alleges that it determined that "it is

appropriate to reserve surplus (at least $200,000 per year)" for

losses and relocation expenses, it provided no facts in its

statement indicating that its management decided during the years

in issue to accumulate $200,000 for store closings.   Accordingly,
                              - 25 -

we hold that the burden of proof remains with petitioner as to

the eighth ground.

     9.   Fashion Obsolescence

     Petitioner states that it reasonably accumulated $500,000

during each of the years in issue to cover drastic changes in

sales because of fashion obsolescence.   Petitioner states that,

although men's fashions are not as volatile as in the women's

industry, dramatic changes have occurred from one year to the

next; for example, the introduction of leisure and Nehru suits

left significant inventories of product at wholesale and retail

almost worthless.

     Respondent argues that petitioner does not provide specific

information about the losses that it incurred during the 1970's,

i.e., the amount of the losses and the amount of inventory that

was affected.   Respondent contends that petitioner fails to

explain how the amount of its accumulation was calculated.

     We hold that petitioner has not disclosed in its statement

sufficient details to permit respondent to prepare for trial.

Petitioner did not quantify its alleged losses during the 1970's

or provide its assessment of the likelihood that such a dramatic

change could occur again.   Additionally, petitioner provided no

facts reflecting that petitioner's management decided during the

years in issue to accumulate $500,000 because of clothes going
                               - 26 -

out of fashion.    Accordingly, we hold that the burden of proof

remains with petitioner as to the ninth ground.

     10.    Earthquake

     Petitioner states that it reasonably accumulated $300,000

during each of the years in issue to protect against earthquake

damage to the Costa Rican facility.     Petitioner states that Costa

Rica lies upon an extremely active fault line and that

earthquakes are frequent.    Petitioner notes that an earthquake

severely damaged a house that petitioner provides for its

managers.

     Respondent argues that petitioner's discussion of its

potential exposure to earthquake damage is vague and speculative.

Respondent contends that petitioner has not presented any

information on its past loss experience because of earthquakes or

whether its manufacturing facility has ever suffered earthquake

damage.    Respondent argues that petitioner fails to provide

details about the extent of the damage to the managers' house,

the cost to repair the damage, whether earthquake insurance was

available, and the date that the damage occurred.

     We hold that petitioner has not disclosed in its statement

sufficient details to permit respondent to prepare for trial.

Petitioner's discussion of its potential liability exposure is

vague and speculative.    Petitioner has not presented any facts

about its loss experience or the loss experience of comparable
                              - 27 -

companies to justify the $300,000 accumulation for

self-insurance.   Accordingly, we hold that the burden of proof

remains with petitioner as to the tenth ground.

     We have considered all of the parties' remaining arguments

and find them to be without merit.

     To reflect the foregoing,

                                      An appropriate order

                                 will be issued.
