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investment and not his salary, which was zero), affg. T.C. Memo.
1991-569. Mr. Martens was a full-time lawyer, and Ms. Martens
was a homemaker. They were not employees of the Stork Shop and
not in the trade or business of retailing maternity wear.
Accordingly, petitioners are not entitled to the business bad
debt deduction.
II. Expense Deduction
Section 162(a) provides that a taxpayer engaged in a trade
or business may deduct all ordinary and necessary expenses.
Petitioners have failed to establish that the Stork Shop was
their trade or business or that the $10,745 was ordinary and
necessary expenses of Mr. Martens’ law practice or law firm.
Moreover, the law firm and the Stork Shop are corporations.
Petitioners may not deduct the $10,745 of corporate expenses on
their personal return. See Deputy v. DuPont, 308 U.S. 488, 494
(1940) (stating that “well established decisions of this Court do
not permit any such blending of the corporation’s business with
the business of its stockholders.”); sec. 1.162-1(a), Income Tax
Regs. (stating that to be deductible, business expenses must be
“directly connected with or pertaining to the taxpayer’s trade or
business”). Accordingly, respondent’s determinations are
sustained.
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Last modified: May 25, 2011