Jay M. Anderson and Helen B. Anderson - Page 2

                  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                                   

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