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business. As a threshold matter, this section requires that a
taxpayer incur the expenses in “carrying on” a trade or business.
Sec. 162(a). Whether petitioner is engaged in a trade or
business and the nature of that trade or business are questions
of fact. Ford v. Commissioner, 56 T.C. 1300, 1307 (1971), affd.
per curiam 487 F.2d 1025 (9th Cir. 1973). The temporary
cessation of a trade or business does not preclude a finding that
a taxpayer was carrying on a trade or business during the period
of cessation. Haft v. Commissioner, 40 T.C. 2, 6 (1963). Thus,
even an unemployed taxpayer may be considered to be carrying on a
trade or business if the taxpayer was previously involved in and
intended to return to a particular trade or business. Id. In
order to take advantage of what is described as the “hiatus
principle”, a taxpayer must show that during the hiatus he
intended to resume the same trade or business. See Estate of
Rockefeller v. Commissioner, 762 F.2d 264, 270 (2d Cir. 1985)
(citing Sherman v. Commissioner, T.C. Memo. 1977-301), affg. 83
T.C. 368 (1984). In Haft v. Commissioner, supra at 6, we stated
as follows:
Plainly, petitioner did not cease to be in the
costume jewelry business in 1957 and 1958 merely
because he temporarily had no merchandise to sell. It
was a period of transition in which he was actively
seeking another connection that would enable him to
continue to serve the same customers with whom he had
previously dealt. We think that the respondent’s
position that petitioner was not carrying on a trade or
business in these circumstances gives an unduly narrow
interpretation to the statute. His failure to make
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