CHIN, Circuit Judge: In these consolidated cases, petitioners were owners of four small businesses that enrolled in purported life insurance plans for employees. Only the four principal owners and a stepson, however, were covered under the plans. The contributions to the plans — amounting to hundreds of thousands of dollars — were claimed as tax deductions by the businesses. The Commissioner of Internal Revenue (the “Commissioner”) concluded that these contributions should not have been deducted because, inter alia, they were not “ordinary and necessary” business expenses within the meaning of the Tax Code. Disallowing the deductions resulted in additional pass-through income to petitioners on which they had not paid taxes. Accordingly, the Commissioner issued notices of deficiency to petitioners and assessed accuracy-related penalties. Petitioners’ cases were consolidated and tried before the United States Tax Court in March 2009. After trial, the tax court ruled in favor of the Commissioner, finding that petitioners owed deficiency payments *220 and accuracy-related penalties. Petitioners appealed. We affirm. BACKGROUND The following facts are drawn from the tax court’s findings and the record on appeal, including stipulations of the parties, documentary evidence, and testimony of petitioners and their witnesses. A. The Benistar Plan The Benistar 419 Plan (the “Plan”) was established in 1997 by Daniel E. Carpenter. It was designed to be a multiple-employer welfare benefit plan under 26 U.S.C. § 419A(f)(6). The “Plan provides death benefits funded by individual life insurance policies for a select group of individuals chosen by the Employer to participate in the Plan.” (Ex. 33-J (Benistar Plan Brochure)) (A 1824). The only benefits “claimed to be provided by or through [the Plan] are pre-retirement death benefits for covered employees of participating employers.” (First Stip. of Facts ¶ 41). Businesses that enroll in the Plan contribute to a trust account maintained by the Plan. The Plan uses these contributions to acquire one or more life insurance policies on the lives of employees covered by the Plan; it withdraws funds from the trust account to pay the premiums on these policies. Each covered employee determines the type of insurance that the Plan will purchase on his behalf. Furthermore, the Plan allows participating businesses to choose the number of years for which contributions to the Plan will be required to fully pay for the death benefit or benefits provided through the Plan. The Plan is listed as the beneficiary on each insurance policy and passes on the death benefit to the covered employee. The Plan also allows participating businesses to withdraw from, or terminate, participation at any time. Upon termination, the Plan can distribute the underlying policies to the insured employees. Until mid-2002, an underlying policy could be distributed at no cost to the covered employee. From mid-2002 to mid-2005, the Plan required that the covered employee be charged 10% of the “cash surrender value” in exchange for the underlying policy. (Carpenter Exam, at 274-76). Starting in mid-2005, the Plan purportedly began to charge covered employees the “fair market value” of the underlying policy …
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