James J. Lencke and Janene B. Lencke - Page 16

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          section 6662(b)(2) for 1990 and section 6662(b)(1) for 1991 and 1992.       
                                       OPINION                                        
               We begin by noting that respondent's determinations are                
          presumed correct, and petitioners bear the burden of proving that           
          those determinations are erroneous.  Rule 142(a); Welch v.                  
          Helvering, 290 U.S. 111 (1933).  Deductions are a matter of                 
          legislative grace, and petitioners have the burden of proving               
          that they are entitled to any claimed deductions.  INDOPCO, Inc.            
          v. Commissioner, 503 U.S. 79, 84 (1992).                                    
          I.   Claimed Business Loss Deductions for Model Railroad Activity           
          Section 1837 provides, in general, that an individual will not be           

          7  SEC. 183. ACTIVITIES NOT ENGAGED IN FOR PROFIT.                          
               (a) GENERAL RULE.--In the case of an activity engaged in by            
          an individual or an S corporation, if such activity is not                  
          engaged in for profit, no deduction attributable to such activity           
          shall be allowed under this chapter except as provided in this              
          section.                                                                    
               (b) DEDUCTIONS ALLOWABLE.--In the case of an activity not              
          engaged in for profit to which subsection (a) applies, there                
          shall be allowed--                                                          
                    (1) the deductions which would be allowable under this            
               chapter for the taxable year without regard to whether or              
               not such activity is engaged in for profit, and                        
                    (2) a deduction equal to the amount of the deductions             
               which would be allowable under this chapter for the taxable            
               year only if such activity were engaged in for profit, but             
               only to the extent that the gross income derived from such             
               activity for the taxable year exceeds the deductions                   
               allowable by reason of paragraph (1).                                  
               (c) ACTIVITY NOT ENGAGED IN FOR PROFIT DEFINED.--For                   
          purposes of this section, the term "activity not engaged in for             
          profit" means any activity other than one with respect to which             
          deductions are allowable for the taxable year under section 162             
                                                             (continued...)           




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