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C. Loss From Trade or Business
As a result of subsections (c) and (d) of section 172, the
basic category of an individual’s losses that may constitute net
operating losses is losses from the conduct of a trade or
business. In general, expenditures paid or incurred in preparing
to enter a trade or business must be capitalized, even if those
expenditures are of a sort that ordinarily would be currently
deductible if the taxpayer had already entered the trade or
business. Hardy v. Commissioner, 93 T.C. 684, 687 (1989), affd.
on this issue and remanded to consider a new issue per order
(10th Cir., Oct. 29, 1990).
Because we conclude, for reasons described infra, that (1)
R.K. was not a part of Laney’s then-ongoing consulting trade or
business, and (2) R.K. had not yet gone into operation when Laney
suffered his losses therefrom, petitioners are not permitted to
carry over Laney’s R.K. losses as a net operating loss to the
years in issue.
Whether a transaction is an expansion of an existing
business, or creates a new and distinct trade or business depends
on the facts and circumstances. In First Security Bank of Idaho,
N.A. v. Commissioner, 63 T.C. 644 (1975), affd. 592 F.2d 1050
(9th Cir. 1979), this Court concluded that when First Security
Bank of Idaho and First Security Bank of Utah initiated consumer
credit card plans, the initial expenses were expenses of
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