Melvin J. Laney and Carolyn A. Laney - Page 40

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            regarded R.K. as “a separate entity” for tax and accounting                               
            purposes.                                                                                 
                  We conclude, and we have found, that R.K. was not part of                           
            Laney’s trade or business of offering his services as a                                   
            consultant.                                                                               
                  Because R.K. had not yet gone into operation when Laney                             
            suffered his reverses and, in 1983, his loss in connection                                
            therewith, Laney’s 1983 R.K. loss was not a loss attributable to                          
            a trade or business, and so could not enter into the computation                          
            of a net operating loss.  Sec. 172(d)(4); Todd v. Commissioner,                           
            77 T.C. 246 (1981), affd. 682 F.2d 207 (9th Cir. 1982).                                   
                  We hold, for respondent, that Laney’s claimed 1983 loss did                         
            not arise from a trade or business.                                                       
            D. Nature and Amount of Loss                                                              
                  Respondent concedes that R.K. was a transaction entered into                        
            for profit, within the meaning of section 165(c)(2).  We have                             
            held that Laney’s 1983 R.K. loss could not be carried forward as                          
            a theft loss, a casualty loss, or a trade or business loss.                               
            Petitioners have not suggested, and we have not found, any other                          
            ordinary loss that could be carried from 1983 to the years before                         
            the Court.14                                                                              

                  14    Neither side discusses sec. 195, relating to                                  
            deductibility of startup expenditures.  Laney’s testimony about                           
            his pre-1983 notions of proper accounting procedures, his                                 
            promises to clarify matters later in the trial, and his brief                             
                                                                         (continued...)               




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