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v. Commissioner, 403 F.2d 403, 406 (2d Cir. 1968), affg. T.C.
Memo. 1967-85.
Profit Objective
Section 162 allows the deduction of ordinary and necessary
expenses incurred in carrying on a trade or business. An
activity qualifies as a trade or business capable of generating
deductions under section 162 only if the taxpayer engaged in the
activity with the intention of making a profit. Brook, Inc. v.
Commissioner, 799 F.2d 833, 838 (2d Cir. 1986), affg. T.C. Memo.
1985-462. Section 212 allows a deduction for expenses incurred
in transactions entered into for profit, although the activities
do not amount to a trade or business.
Section 183 allows a deduction for activities not motivated
by profit, but it subjects such deductions to a variety of
limitations. Section 183(a) first permits deductions of items
that, by their terms, are not dependent upon a profit motive,
such as certain deductions for interest or taxes. Section
183(b)(1) also allows deductions which would otherwise be
permitted only if the activity was engaged in for profit.
Section 183(b)(2), however, limits these latter deductions to the
amount by which the gross income exceeds the deductions that are
not dependent upon a profit motive.
In addition to the deductions disallowed, respondent
disallowed a claimed investment tax credit. Section 38 permits a
credit against Federal income taxes, allowable as a percentage of
an investment in "section 38 property". This is generally
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