John Shackelford Fairbanks - Page 13

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          activity for profit and was not engaged in the trade or business            
          of consulting in 1995.  Respondent is sustained on this issue.              
          Schedule C Expenses                                                         
               As stated above, a taxpayer must show that he engaged in an            
          activity with the objective of making a profit in order to deduct           
          expenses incurred under either section 162 or section 212.  See             
          Golanty v. Commissioner, 72 T.C. 411, 425 (1979), affd. without             
          published opinion 647 F.2d 170 (9th Cir. 1981).  Where an                   
          activity is not engaged in for profit, section 183(b)(1) allows             
          deductions that are not dependent on profit objectives, e.g.,               
          certain interest and State and local taxes.  Additional                     
          deductions are allowed under section 183(b)(2) as if the activity           
          were engaged in for profit, but such deductions are allowed only            
          to the extent that gross income from the activity exceeds                   
          deductions already allowed under section 183(b)(1).                         
               As stated above, petitioner has failed to establish that he            
          engaged in the consulting activity in 1995 with the objective of            
          making a profit.  Additionally, petitioner failed to earn any               
          gross income in the consulting activity for the year in issue.              
          Since petitioner earned no consulting income in 1995, he is                 
          unable to deduct any Schedule C expenses pursuant to section                
          183(b), and we need not address the substantiation issue.                   

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