- 11 -
Petitioners have failed, however, to provide statements of fact
on which they base their assignments of error as to respondent's
determinations of additions to tax, as required by Rule 34(b).
II. Deficiencies in Tax
A. Ordinary and Necessary Business Expenses
In pertinent part, section 162(a) provides: "There shall be
allowed as a deduction all the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on any trade
or business". To qualify for deduction under section 162(a), an
item must (1) be paid or incurred during the taxable year, (2) be
for carrying on any trade or business, (3) be an expense, (4) be
a necessary expense, and (5) be an ordinary expense. INDOPCO,
Inc. v. Commissioner, 503 U.S. 79, 85 (1992). By raising an
issue of verification, respondent challenges whether petitioners
have met the first qualification set forth above. Respondent has
also challenged whether petitioners have met the second
qualification. An item fails to meet the second qualification
that it be for carrying on a trade or business if it is a
preopening expense. A preopening expense is an expense incurred
between the decision to establish a business and the actual
beginning of business operations. See, e.g, Richmond Television
Corp. v. United States, 345 F.2d 901, 907 (4th Cir. 1965),
vacated and remanded on other issues 382 U.S. 68 (1965), original
holding on this issue reaffd. 354 F.2d 410, 411 (4th Cir. 1965),
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011