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In the notice of deficiency sent to petitioners on October
7, 1996, for each year in issue respondent disallowed the net
losses reported on the Schedules C attributable to petitioner's
writing activity because "it has not been established that * * *
[petitioner's writing activity] was a business entered into for
profit." Because petitioners' 1994 Federal income tax liability
was increased as a result of the disallowance, respondent
increased the foreign tax credit claimed on petitioners' 1994
Federal income tax return. In an amendment to answer, respondent
further alleged that the deduction attributable to the cruise
should be disallowed pursuant to section 274(h)(2).
OPINION
In general, section 162(a) allows a deduction for all
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on a trade or business. The term "trade
or business" is not precisely defined in the Internal Revenue
Code or the regulations promulgated thereunder; however, it is
well established that in order for an activity to be considered a
taxpayer's trade or business for purposes of section 162, the
activity must be conducted "with continuity and regularity" and
"the taxpayer's primary purpose for engaging in the activity must
be for income or profit." Commissioner v. Groetzinger, 480 U.S.
23, 35 (1987).
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