- 9 -
petitioner reported gross receipts from the consulting activity
in the amount of $1,563. Section 183(b)(2) allows a deduction
for expenses that would be deductible only if the activity were
engaged in for profit, but only to the extent that the total
gross income derived from the activity exceeds the deductions
allowed by section 183(b)(1). Therefore, we must decide whether
petitioner has substantiated the expenses he claimed on the
Schedule C attached to his 1996 Federal income tax return.
Respondent determined that petitioner's claimed Schedule C
expenses were personal in nature and not ordinary and necessary
expenses of petitioner's purported investment activity. In
general, where an expenditure is primarily associated with
business purposes, and where personal benefit is distinctly
secondary and incidental, the expenditure may be deducted under
section 162. See International Artists, Ltd. v. Commissioner, 55
T.C. 94, 104 (1970). Conversely, if an expenditure is primarily
motivated by personal considerations, generally no deduction will
be allowed. See Henry v. Commissioner, 36 T.C. 879, 884 (1961).
An expenditure is not "ordinary and necessary" unless the
taxpayer establishes that it is directly connected with, or
proximately related to, the taxpayer's activities. See Bingham's
Trust v. Commissioner, 325 U.S. 365, 370 (1945).
Taxpayers are required to keep sufficient records to enable
the Commissioner to determine their correct tax liability. See
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011