- 6 -
the record, however, we are satisfied that petitioners were
actively engaged in business in 1995 under the name Solarsys with
the primary purpose of making a profit.
Petitioners’ activity attempting to establish distributors
to sell their generators was conducted with regularity and
continuity. Their activity went beyond the mere startup phase.
In 1995 the generator was available for sale, and five
individuals purchased the generator for resale. The fact that
these individuals eventually returned the generators for a refund
does not undermine a conclusion that petitioners were engaged in
business. Further, nothing in the record suggests that
petitioners’ activity attempting to develop a market for their
generators was not undertaken with the primary purpose of making
a profit. See Golanty v. Commissioner, 72 T.C. 411, 426 (1979),
affd. without published opinion 647 F.2d 170 (9th Cir. 1981);
sec. 1.183-2(a) and (b), Income Tax Regs.
The next consideration is whether the expenses petitioners
claimed on their Schedule C are ordinary and necessary business
expenses. See sec. 162(a); Commissioner v. Lincoln Sav. & Loan
Association, 403 U.S. 345, 352 (1971); Welch v. Helvering, 290
U.S. 111, 113 (1933). “Ordinary” has been defined in the context
of section 162(a) as that which is “normal, usual, or customary”
in the taxpayer's trade or business. Deputy v. du Pont, 308 U.S.
488, 495 (1940). “Necessary” has been construed to mean
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011