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on the underpayment resulting from disallowance of the portion of
the Schedule C deduction expended for Federal income taxes.
1. Section 179
Section 179(a) provides:
A taxpayer may elect to treat the cost of any section 179
property as an expense which is not chargeable to capital
account. Any cost so treated shall be allowed as a
deduction for the taxable year in which the section 179
property is placed in service.
Under section 179(b)(1), the deduction is limited, inter alia, to
$17,500 and "shall not exceed the aggregate amount of taxable
income of the taxpayer for such taxable year which is derived
from the active conduct by the taxpayer of any trade or business
during such taxable year." Sec. 179(b)(3)(A). For purposes of
section 179(b)(3)(A), taxable income is computed without regard
to the section 179 deduction. See sec. 179(b)(3)(C). Section
179(d)(8) further provides: "In the case of a partnership, the
limitations of subsection (b) shall apply with respect to the
partnership and with respect to each partner." The regulations
amplify:
The taxable income limitation * * * applies to the
partnership as well as to each partner. Thus, the
partnership may not allocate to its partners as a section
179 expense deduction for any taxable year more than the
partnership's taxable income limitation for that taxable
year, and a partner may not deduct as a section 179 expense
deduction for any taxable year more than the partner's
taxable income limitation for that taxable year. [Sec.
1.179-2(c)(2), Income Tax Regs.]
Petitioners acknowledge that under section 1.179-2(c)(2), Income
Tax Regs., the section 179 deduction claimed here is not
allowable. They argue, however, that the regulation is invalid.
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Last modified: May 25, 2011