-9-
services, and car and truck expenses for their cabin rental
activity for 1994 under section 162. We disagree.
Generally, a taxpayer may not deduct startup expenses. See
sec. 195(a). A startup expenditure is any amount:
(A) paid or incurred in connection with–-
(i) investigating the creation or acquisition of
an active trade or business, or
(ii) creating an active trade or business, or
(iii) any activity engaged in for profit and for
the production of income before the day on which
the active trade or business begins, in
anticipation of such activity becoming an active
trade or business, and
(B) which, if paid or incurred in connection with the
operation of an existing active trade or business (in the
same field as the trade or business referred to in
subparagraph (A)), would be allowable as a deduction for the
taxable year in which paid or incurred. [Sec. 195(c).]
Petitioners incurred these expenses before the cabin rental
activity became an active trade or business. Charlton renovated
the cabins in 1994 but did not rent them or offer them for rent
until 1998. The cabin rental activity was not an active trade or
business in 1994. Thus, we conclude that the claimed expenses
were nondeductible startup expenses.
C. Innocent Spouse Issues
1. Procedural Status of Innocent Spouse Issues
Petitioners each asserted in their petitions that they
qualify for relief as an innocent spouse. The statutory
provision providing relief for innocent spouses in effect when
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