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Respondent determined deficiencies in petitioner's 1987,
1988, and 1989 Federal income taxes in the amounts of $3,437,
$1,093, and $4,634, respectively. The issue for decision is
whether the limitations imposed by section 280A(c)(5) are
applicable to business expense deductions claimed by petitioner's
wholly owned S corporation in connection with the operation of a
commercial art gallery located in the building where petitioner
resided. The resolution of this issue turns upon whether the
portions of the building in which the art gallery was situated
are part of, or appurtenant to, the dwelling unit in which
petitioner resided.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits attached thereto are
incorporated herein by this reference. At the time the petition
was filed, petitioner resided in Alexandria, Virginia.
During the years in issue, petitioner was employed on a
full-time basis as an attorney. On December 4, 1986, petitioner
purchased a building located at 229 North Royal Street (the
building) in the Old Town section of Alexandria, Virginia. The
building is located on the northeast corner at the intersection
of North Royal and Queen Streets in a predominantly residential
neighborhood composed mostly of townhouses. It is attached to
townhouses on North Royal and Queen Streets, although
architecturally distinct in appearance from the other townhouses
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