John Gallo - Page 13

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          independent contractor business pertains only to the form of the            
          activity and not its substance.  Having been engaged in the                 
          paralegal business as an employee, see Primuth v. Commissioner,             
          54 T.C. 374, 377 (1970), petitioner did not change the general              
          nature of his business activities by working out of his home                
          office.  Therefore, we conclude that petitioner, in 1992, was               
          carrying on a trade or business as a paralegal and is entitled to           
          deduct all of the other expenses at issue, with the exception of            
          the two following items.                                                    
               The first item is the claimed expenses for $3,600 for a                
          portion of the rent associated with petitioner’s residential                
          premises.  As applicable herein, section 280A provides that no              
          deduction shall be allowed with regard to the use of residential            
          property of the taxpayer.  Some exceptions are provided in                  
          section 280A(c).  However, section 280A(c)(5) clearly provides              
          that no deduction shall be allowable in excess of the                       
          income derived from such use.  In other words, no deduction for             
          use of a residential unit can be taken if said deduction gives              
          rise to a loss.  Accordingly, even though petitioner’s use of his           
          residence may have qualified as one of the exceptions under                 
          section 280A(c)(1) through (4), section 280A(c)(5) disallows the            
          claimed rental expense deduction, as petitioner had no paralegal            
          income for 1992.                                                            

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