Jack R. and Patricia J. Finnegan - Page 6

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               On August 17, 1994, the Appeals Office referred the case               
          back to the examination division.  The case was assigned to                 
          Revenue Agent Kurt Bensworth (Mr. Bensworth).  Sometime after               
          September 28, 1994, Mr. Bensworth issued a report recommending              
          full disallowance of the refund claim.  On April 24, 1995, the              
          IRS mailed a notice of deficiency to petitioners asserting a                
          deficiency of $10,801--the amount of the refund claim which was             
          previously allowed and abated.                                              
                                       OPINION                                        
               Petitioners contend that the real estate activity was part             
          of the construction consulting business or, alternatively, that             
          it was a separate trade or business.  Respondent argues that the            
          real estate activity was not part of petitioners' construction              
          consulting business;5 furthermore, respondent contends that the             
          real estate activity was not itself a trade or business.                    
          Therefore, according to respondent, section 162 does not support            
          the deductibility of the additional expenses.  Respondent                   
          alternatively argues that if the real estate activity was part of           
          petitioners' construction consulting business, or was itself a              
          trade or business, then the additional expenses must be                     
          capitalized.                                                                



               5  Respondent concedes that Mr. Finnegan was in the trade or           
          business of being a construction consultant.                                





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