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The preopening expense doctrine requires expenses incurred
prior to the commencement of a trade or business, or prior to the
start of an income producing activity, to be capitalized rather
than deducted under section 162(a) or 212. See Hardy v.
Commissioner, 93 T.C. 684 (1989). If otherwise eligible,
preopening expenses may be amortized under section 195 after a
trade or business begins.
The preopening expense doctrine is inapplicable in this
case. The doctrine is a limitation on the deductibility of
certain expenses under sections 162(a) and 212. Petitioner,
however, did not have a profit motive and consequently the
expenses he incurred do not pass the threshold requirements of
these sections. See sec. 212; Commissioner v. Groetzinger, supra
at 35 ("to be engaged in a trade or business [within the meaning
of section 162(a)] * * * the taxpayer's primary purpose for
engaging in the activity must be for income or profit"). Because
neither section 162(a) nor section 212 applies to petitioner, the
preopening expense doctrine does not operate to require
petitioner to capitalize, rather than deduct, any expenses.
On careful reconsideration pursuant to the mandate of the
Court of Appeals,
Decision will be entered
for respondent.
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Last modified: May 25, 2011