Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable years before
the Court, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
After concessions by both parties,1 the remaining issue for
decision is whether petitioners may deduct depreciation in the
amount of $33,333 in each of the taxable years 1989 and 1990 for
a prototype automobile built by petitioner Jay M. Anderson.2 In
reaching our decision, we must decide: (1) Whether petitioner
Jay M. Anderson was engaged in a trade or business related to the
automobile or held the automobile for production of income or,
conversely, whether the activity related to the automobile was
one "not engaged in for profit" within the meaning of section
183, and (2) whether petitioner has substantiated his basis in
the automobile.
1 Respondent conceded the issue of the sec. 6651(a)(1)
addition to tax for the taxable year 1989. Petitioners conceded
the following adjustments to income:
1989 1990
Capital gains $960 $13,350
Depreciation-mortgage business (350) 825
Auto rental expense (51) --
Depreciation-rental property -- 381
Miscellaneous itemized deductions 3,534 2,096
Other car expenses 4,933 --
2 That decision also will determine petitioners' medical
expense deductions for 1989 and 1990, and the self-employment tax
for 1990, since the adjustments to these items are purely
computational.
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