- 17 -
reported any gains or losses from his real estate activity); (4)
the expected amount of profits from the activity was relatively
insignificant when compared to other sources generating
substantial income (petitioner reported gross income from his
medical practice of $261,269, $270,658, and $329,629 for 1988,
1989, and 1990, respectively); (5) petitioner enjoyed the
activity as evidenced by his lifelong interest in "tinkering"
with structures; (6) petitioner was not a licensed contractor in
the State of California; and (7) petitioner's time commitment to
his medical practice (he testified that he spent "24 hours a day"
treating patients) left him with little time to devote to a
second trade or business.
After considering all the facts and circumstances in this
case, we find that petitioner's real estate activity was not an
activity engaged in for profit; therefore, petitioner was not
entitled to deduct any real estate activity COGS, mortgage
interest payments, and property tax payments as ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business.8
Civil Fraud
The addition to tax in the case of fraud is a civil sanction
provided primarily as a safeguard for the protection of the
8 We note that in so holding, and in light of petitioner's
concessions, supra, we need not decide whether these amounts need
to be capitalized or whether petitioner substantiated payments of
these amounts.
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