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OPINION
Section 162 allows a deduction for all the ordinary and
necessary expenses paid or incurred while carrying on a trade or
business. Section 167(a) allows a depreciation deduction for
property used in the trade or business or held for the production
of income.
For an activity to constitute a trade or business, it is
well settled that “the taxpayer must be involved in the activity
with continuity and regularity and that 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).
To determine whether petitioners are carrying on a trade or
business requires an examination of the facts. See Higgins v.
Commissioner, 312 U.S. 212, 217 (1941). Petitioners bear the
burden of proof. See Rule 142(a); Welch v. Helvering, 290 U.S.
111, 115 (1933).
Petitioners claim that they were engaged in the trade or
business of manufacturing vending machines.3 It is undisputed,
however, that there was no significant manufacturing activity
after February 1988, when the manufacturing equipment was
relocated from Huntsville to Brownsboro and work on the Ford
3 Although petitioners’ Schedules C for taxable years 1988,
1989, and 1990 list the business as “equipment rental”,
petitioners have not argued at trial or on brief that they were
ever engaged in such a trade or business.
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Last modified: May 25, 2011