- 16 -
failed to show (1) that Mr. Hawthorne was engaged during the
years at issue in carrying on a trade or business with respect to
the properties in question within the meaning of section 162 and
(2) that the claimed expenses are ordinary and necessary expenses
paid or incurred in carrying on a trade or business within the
meaning of that section. Consequently, we sustain respondent's
determinations disallowing the deductions that petitioners
claimed in Schedules C of their returns for the years at issue6
and reject their position that they are entitled to additional
Schedule C deductions for 1992 for legal and engineering fees.7
6 Consistent with respondent's concession at trial with respect
to the real estate taxes claimed by petitioners in Schedule C of
their 1992 return, see supra note 3, respondent concedes on brief
that if the Court were to find that the expenses claimed by
petitioners in Schedules C of their returns for 1993 and 1994 are
not deductible under sec. 162, the expenses that they claimed in
those schedules for "Taxes and licenses", which consisted of real
estate taxes, would be deductible as itemized Schedule A
deductions that are not subject to the 2-percent adjusted gross
income limitation for miscellaneous deductions under sec. 67(a).
7 Even if petitioners had established that they are otherwise
entitled under sec. 162 to the claimed Schedules C expenses for
the years at issue, they have not established on the record
before us that those expenses are currently deductible. See sec.
1.446-1(a)(4)(ii), Income Tax Regs.
With respect to the additional legal and engineering fees that
petitioners are claiming for 1992, even if petitioners had shown
that they are entitled under sec. 162 to those fees as Schedule C
expenses, we find on the instant record that petitioners have
failed to prove that they did not already claim those fees in
Schedule C or Schedule E of their 1992 return.
With respect to the depreciation that petitioners claimed in
Schedules C of their returns for 1993 and 1994, even if
petitioners had established (1) that the properties were used in
a trade or business or (2) that they were held for the production
of income, which we find below they have not, we find on the
present record that petitioners have not established their
(continued...)
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