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herein. Petitioners cannot claim surprise or ignorance as to
the basis for the determinations.
Under the circumstances herein, we reject petitioners'
request noting that, in any event, we can dispose of the case on
the merits based on the undisputed facts with the result that the
location of the burden of proof becomes irrelevant.
Section 162(a)3 allows the deduction of "all the ordinary
and necessary expenses paid or incurred during the taxable year
in carrying on any trade or business". However, section
263(a)(1) provides that "No deduction shall be allowed for * * *
any amount paid out for new buildings or for permanent
improvements or betterments made to increase the value of any
property or estate."
The parties have stipulated that the activities of LM
Development constituted a "business", but that is not
determinative of deductibility. As the Court of Appeals for the
Ninth Circuit stated in Madden v. Commissioner, 514 F.2d 1149,
1150 (9th Cir. 1975), revg. and remanding 57 T.C. 513 (1972)4:
The statutes involved in this appeal are
relatively clear. Sections 162 and 212 allow a
taxpayer to deduct many current expenses from ordinary
3 Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable years before
the Court, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
4 Madden and its rationale were specifically accepted by
this Court in Soelling v. Commissioner, 70 T.C. 1052, 1055-1056
(1978).
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