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such portion. Sec. 6664(c)(1). Respondent has determined that
all of petitioners' underpayments of income tax liability for
1989 and 1990 are attributable to substantial understatements of
income tax liability.
As is true for 1987 and 1988, due to (1) our decision with
regard to the depreciation issue and (2) concessions made by the
parties, we are unable to determine whether there are substantial
understatements of income for 1989 and 1990. We can, however,
address the two remaining issues raised by petitioners with
regard to imposition of the section 6662 penalties for both 1989
and 1990. Any applicable section 6662 penalties can be computed
pursuant to Rule 155.
Petitioners argue that there was substantial authority for
treating the corporation's expenditures in 1989 and 1990 as those
of an established trade or business. Petitioners rely on the
following proposition:
The evidence established that * * * [the corporation]
had, by 1988, gone far beyond any preparatory efforts
and had, in fact, begun actively selling various exotic
car-related merchandize [sic] at car shows featuring
Scot's [sic] Limo's exotic cars."
Petitioners cite Briarcliff Candy Corp. v. Commissioner, 475 F.2d
775 (2d Cir. 1973) and NCNB Corp. v. United States, 684 F.2d 285
(4th Cir. 1982), for the proposition that "expenses incurred
during * * * a business transition or expansion by an existing
business are fully deductible".
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