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Section 38 allows a credit for investment in certain
depreciable property. The amount of the credit is limited to a
percentage of a taxpayer’s qualified investment in section 38
property. Sec. 46(a). Qualified investment in new property is a
percentage of the property’s basis, generally its cost. Secs.
46(c)(1), 1012. The lessor of the property, here Century
Concepts, may elect to pass through the credit to the lessee,
here petitioner, and the lessee generally is treated as having
acquired the property for its fair market value. Sec. 48(d).
It is well settled that to constitute a trade or business,
the activity must be engaged in with an "actual and honest
objective of making a profit." Agro Science Co. v. Commissioner,
934 F.2d 573 (5th Cir. 1991), affg. T.C. Memo. 1989-687; Levy v.
Commissioner, 91 T.C. 838, 871 (1988); Drobny v. Commissioner, 86
T.C. 1326, 1340 (1986). Absent an actual and honest profit
objective, tax deductions relating to an investment are limited
under section 183 to the income generated from the activity.
Dreicer v. Commissioner, 78 T.C. 642, 644-646 (1982), affd.
without opinion 702 F.2d 1205 (D.C. Cir. 1983).
Although a reasonable expectation of profit is not required,
the taxpayer must have the objective of realizing a profit.
Drobny v. Commissioner, supra at 1341; Engdahl v. Commissioner,
72 T.C. 659, 666 (1979). In this context, profit means economic
profit, independent of tax savings. Drobny v. Commissioner,
supra at 1341; Herrick v. Commissioner, 85 T.C. 237 (1985).
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