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Most of the claimed deductions were disallowed by respondent
due to petitioners' lack of business purpose. In that regard,
section 162 governs the deductibility of business expenses. It
allows a deduction for "all the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on a trade
or business". To be "ordinary" the expense must have a
reasonably approximate relationship to the operation of a
taxpayer's trade or business. Challenge Manufacturing Co. v.
Commissioner, 37 T.C. 650, 660 (1962). To be "necessary" the
expense must be appropriate or helpful. Commissioner v.
Heininger, 320 U.S. 467, 471 (1943). A shareholder's personal
expenses are not ordinary and necessary expenses of the
corporation. Pantages Theater Co. v. Welch, 71 F.2d 68 (9th
Cir. 1934); Challenge Manufacturing Co. v. Commissioner, supra
at 650.
It was argued that petitioners' and the Johnsons' expenses
were properly segregated and that the corporations did not
deduct the Johnsons' personal items, which were "backed-out"
and which the Johnsons reported as income. References were
made to worksheets containing the segregations, but none were
offered or received in our record.
Respondent raised the question of whether Service met the
requirements for both section 280A (business use of home) and
the holding of Commissioner v. Soliman, 506 U.S. __, 113 S. Ct.
701 (1993). However, we have found that Service's principal
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