- 38 -
section 263A and must be capitalized. The only years for which
respondent argues that petitioners failed to adequately
substantiate their Schedule C expenses are 1992 and 1993. We
address respondent’s substantiation argument in part V.A.3. of
this opinion. In this part of the opinion, we focus only on
whether petitioners must capitalize their noninterest Schedule C
expenses under section 263A.
Regardless of which party bears the burden of proof on the
section 263A issue, the evidence shows that petitioners were
engaged during the years 1990 through and including 1993 in the
rehabilitation, renovation, and retrofitting of the 5401-9 S.
Broadway property. The evidence also shows: (1) The production
period with respect to that part of the property intended for use
as a restaurant/nightclub facility began in approximately 1987
and continued through at least 1993; (2) as of August 1992,
petitioners lacked sufficient funds to complete the retrofitting
and renovation of the restaurant/nightclub facility; (3)
petitioners did not operate either a nightclub facility or a
restaurant for profit at any time during 1992 or 1993; and (4)
any expenses petitioners substantiated and deducted on their
Schedules C for 1990, 1991, 1992, and 1993, with the exception of
those properly allocable to petitioners’ Schedule E rental
activity, were attributable to petitioners’ efforts to retrofit
and renovate the 5401-9 S. Broadway property for use as an
Page: Previous 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 NextLast modified: May 25, 2011