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In this case, even if the activities in which James was
involved qualified as a trade or business,10 the trade or
business was not his. The trade or business was that of Quotum,
a corporation of which James was the president. The record in
this case, while extremely sparse, contradictory, and confusing,
demonstrates that James’ attempts to facilitate the purchase and
delivery of Russian airplanes were on behalf of Quotum. He
corresponded using Quotum’s stationery. He executed documents in
his capacity as Quotum’s president. Although he incurred travel
expenses during 1992, the expenses were incurred in connection
with Quotum’s business, and James requested reimbursement for
those expenses from Quotum.
A corporation may not be disregarded for tax purposes if the
corporation has a substantial business purpose or it actually
engages in business. See Moline Properties, Inc. v.
Commissioner, 319 U.S. 436, 438-439 (1943); Jackson v.
Commissioner, 233 F.2d 289, 290 (2d Cir. 1956). In this case,
Quotum had a substantial business purpose--the purchase, sale,
10 Whether the alleged trade or business had actually
commenced is debatable. Ordinarily, expenses paid after a
decision has been made to start a business but before the
business commences are not deductible. Such preopening expenses
are capital in nature. See sec. 195; Madison Gas & Elec. Co. v.
Commissioner, 72 T.C. 521 (1979), affd. 633 F.2d 512 (7th Cir.
1980); Frank v. Commissioner, 20 T.C. 511 (1953).
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