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has allowed petitioners' claimed Schedule C deductions to the
extent of their reported gross receipts from this activity (i.e.,
$15,535).
Discussion
In general, section 162(a) allows a deduction for ordinary
and necessary business expenses paid or incurred during the
taxable year in carrying on a trade or business. Whether a
taxpayer is carrying on a trade or business requires an
examination of all the relevant facts. See Commissioner v.
Groetzinger, 480 U.S. 23, 26 (1987). The burden of proof is on
petitioners. See Rule 142(a).
The parties agree that these three factors are relevant in
determining whether a trade or business exists: (1) whether the
taxpayer undertook the activity intending to make a profit; (2)
whether the taxpayer was regularly and actively involved in the
activity; and (3) whether the taxpayer’s business operations have
actually commenced. See McManus v. Commissioner, T.C. Memo.
1987-457, affd. per curiam without published opinion 865 F.2d 255
(4th Cir. 1988) and cases cited therein.
The record does not establish that petitioners satisfy any
of these factors. First, there is no evidence as to whether
petitioners engaged in this purported activity with “the basic
and dominant intent” of making a profit. See Hirsch v.
Commissioner, 315 F.2d 731, 736 (9th Cir. 1963), affg. T.C. Memo.
1961-256. The determination of a profit objective is based on
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