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(1) Whether petitioners are entitled, under section 174(a), to a
deduction for the cost of an automobile engine that was used in
connection with a research or experimentation activity of Leonard
Charles Ekman (petitioner); (2) if the automobile engine is not
deductible as a research or experimentation expense, whether the
cost is deductible under section 179; and (3) if the cost of the
automobile engine is not deductible under either section 174(a)
or section 179, whether the engine is depreciable under section
167.
Some of the facts were stipulated. Those facts, with the
annexed exhibits, are so found and are incorporated herein by
reference. At the time the petition was filed, petitioners,
husband and wife, were legal residents of Panama City, Florida.
Although the issues in this case involve one item, an
automobile engine that was used in a research and experimental
activity, there are several other adjustments in the notice of
deficiency as to which the parties reached a basis for settlement
prior to trial.2
2 On their income tax return, petitioners claimed
Schedule A itemized deductions of $11,819. In the notice of
deficiency, respondent disallowed these expenses as itemized
deductions but allowed Schedule E expenses on rental property of
$12,725 and $1,790 for depreciation. Petitioners agree to these
adjustments. On Schedule C of their income tax return, relating
to petitioners' research or experimental activity, petitioners
claimed expenses totaling $18,305 that respondent totally
disallowed. Respondent, however, allowed a deduction, under
Schedule C, in the amount of $609, for expenses petitioners had
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