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share of SFIS’s loss. In the statutory notice of deficiency,
respondent disallowed the deductions in full. Respondent
determined that, because the activities of SFIS were not operated
with a profit motive during the years in issue, the allowable
deductions for expenses related thereto are limited to the amount
of SFIS’s income in each year.
Discussion
Under section 162(a), a taxpayer may deduct the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on its trade or business. A taxpayer is engaged in a
trade or business if the taxpayer is involved in the activity
with continuity and regularity and with the primary purpose of
making a profit. Commissioner v. Groetzinger, 480 U.S. 23, 35
(1987).
If an activity of a taxpayer is not conducted for profit,
section 183(a) disallows all deductions related thereto, except
as provided by section 183(b). An activity is not conducted for
profit if it is one with respect to which deductions are not
allowable under section 162 or section 212(1) or (2).2 Sec.
183(c). If an activity of a taxpayer is not for profit, section
183(b) allows the taxpayer to deduct (1) expenses which otherwise
would have been allowable without regard to profit motive, and
2Sec. 212 applies only to individuals and is therefore
inapplicable to SFIS.
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Last modified: May 25, 2011