Paul F. Dickie - Page 5




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               On the 1994 and 1995 Schedules C, Profit or Loss From                  
          Business, petitioner identified his principal business or                   
          profession as musician, and listed his business name as "Positive           
          Reaction".  For 1994 and 1995, petitioner reported $600 and zero            
          in gross income, $4,286 and $6,925 in expenses, and a net loss of           
          $3,686 and $6,925, respectively.                                            
               On the 1994 Schedule C for Shaklee Sales, petitioner claimed           
          $3,018 in expenses for supplies and a net loss for that business            
          of $10,663.                                                                 
               In the notices of deficiency, respondent determined that               
          petitioner's activity as a musician was not an activity engaged             
          in for profit under section 183 for both years, allowed $600 of             
          expenses up to the amount of income as a Schedule A deduction for           
          1994, disallowed the $3,018 in expenses for supplies claimed in             
          1994 because it had not been established that they were ordinary            
          and necessary business expenses, made automatic adjustments, and            
          imposed accuracy-related penalties for both years.                          
               Deductions are a matter of legislative grace.  New Colonial            
          Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).  Generally,                 
          section 183(a) disallows any deductions attributable to                     
          activities not engaged in for profit except as provided under               
          section 183(b).  An activity not engaged in for profit means any            
          activity other than one with respect to which deductions are                







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