Kenneth D. Shepherd and Martha A. Gregory - Page 8

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          section 183(b).  Where there is no profit objective, section                
          183(b)(1) allows only deductions which are allowable independent            
          of profit objective, and section 183(b)(2) allows other                     
          deductions only to the extent that they do not exceed gross                 
          income derived from the activity reduced by the deductions                  
          allowable under section 183(b)(1).                                          
               Any deductions allowable under section 183(b)(1) are to be             
          deducted from adjusted gross income in computing taxable income.            
          Jasionowski v. Commissioner, 66 T.C. 312, 320 (1976).  These                
          deductions may be taken only if the taxpayer itemizes his                   
          deductions.  Rev. Rul. 75-14, 1975-1 C.B. 90.  Respondent                   
          concedes that petitioners have substantiated their house-related            
          expenses for interest and taxes and has allowed petitioners                 
          itemized deductions for the interest and taxes in lieu of the               
          smaller standard deductions claimed by them on their returns.               
               Petitioners' 1991 and 1992 Schedules C showed gross income             
          from their research activity in the amounts of $1,454 and $1,833,           
          respectively.  For such taxable years, the itemized deductions,             
          in the amounts of $6,553 and $6,911, respectively, allowed under            
          sections 163, 164, and 183(b)(1), exceed the gross income claimed           
          from petitioners' research activity.  Therefore, petitioners are            
          precluded from taking any further deductions for expenses related           
          to such activity even if substantiated.  Sec. 183(b)(2).  We                
          therefore sustain respondent's determination on this issue.                 






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