Otis W. Jordan and Alma F. Jordan - Page 10

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          To be deductible as a trade or business expenses under section              
          162(a), the expense must be ordinary and necessary.  See                    
          Commissioner v. Tellier, 383 U.S. 687, 689 (1966); Deputy v. du             
          Pont, 308 U.S. 488, 495 (1940).  Both petitioners testified at              
          trial.  Petitioners’ return preparer was present at trial and was           
          allowed to sit at counsel table to assist petitioners in the                
          presentation of their case; she was not called as a witness.                
          Although questioned on the points, petitioners failed to                    
          establish that the following deductions were ordinary and                   
          necessary to the operation of their horse racing activity:                  
          Custom hire--$1,600; insurance--$817.92; interest (other)--                 
          $1,494.67; repairs--$2,274.82; and taxes--$1,892.  Consequently,            
          petitioners are not entitled to deductions for those items.                 
               Petitioners’ horse racing activity was conducted at their              
          farm, which was also their residence.  Deductions attributable to           
          the use of a taxpayer’s residence in the taxpayer’s trade or                
          business are limited by the amount of gross income derived from             
          such use.  See sec. 280A(c)(5).  As best as can be determined               
          from the record, the mortgage interest deduction of $1,665.96               
          claimed on the Schedule F relates to the mortgage on petitioners’           
          residence.  Some or all of the amount might be allowable as an              
          itemized deduction.  See section 163.  (Petitioners did not elect           
          to itemize deductions on their 1994 return.)  Nevertheless,                 
          because of the amount of gross income earned by petitioners in              

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