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For 1988, the corporation reported gross receipts of $8,369
and an ordinary loss of $31,531 on its Federal income tax return.
Those gross receipts, along with $16,405 of corporate expenses,
which were accepted as verified by respondent, were allocated by
respondent to Scott's Limo. Petitioners have agreed to that
adjustment.
For both 1989 and 1990, the corporation reported gross
receipts of zero on its Federal income tax return. For 1989, it
reported an ordinary loss of $13,218; for 1990, it reported an
ordinary loss of $13,357. Neither the corporation's 1989 return
nor its 1990 tax return reflects either a cost of goods sold, an
inventory, or any wages paid to employees. The corporation sold
no merchandise during either 1989 or 1990.
OPINION
I. Introduction
We must decide (1) whether certain automobiles owned by
petitioner give rise to deductions for depreciation for tax
purposes, (2) whether petitioner's S corporation was in a trade
or business, so that petitioners may claim certain losses
incurred by such corporation, and (3) whether petitioners are
liable for certain additions to tax. Petitioners bear the burden
of proof. Rule 142(a).
II. Depreciation
Section 167(a) provides that a reasonable allowance for the
exhaustion, wear and tear, and obsolescence of property used in
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