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They did not report as income the value of their use of the Rolls
Royce during the years in issue.
OPINION
Issue 1. Roy, Inc.'s Rolls Royce Expenses
The first issue for decision is whether the corporate
petitioner is entitled to deductions pursuant to section 162 for
the expenses incurred for the use and operation of the Rolls Royce
during the years in issue. Roy, Inc. claims that the expenses were
entirely for business purposes and that they were "ordinary and
necessary". Respondent disagrees, asserting that not only did Roy,
Inc. fail to substantiate the business use of the Rolls Royce but
that it also failed to show that the expenses associated with the
Rolls Royce were ordinary and necessary.
Section 162 allows as a deduction all ordinary and necessary
expenses paid or incurred during the taxable year in carrying on a
trade or business. An expense is ordinary if it is common or
frequently occurs in the context of the particular business
involved. Deputy v. duPont, 308 U.S. 488, 495 (1940). An expense
is necessary if it is appropriate and helpful to the taxpayer's
trade or business. Commissioner v. Heininger, 320 U.S. 467, 471
(1943). The taxpayer must show that there is a proximate
relationship between the claimed expense and the operation of the
taxpayer's trade or business. Henry v. Commissioner, 36 T.C. 879,
884 (1961).
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