- 5 - In pertinent part, section 162(a) provides that “There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business”. The question is whether petitioners’ activities that gave rise to the disputed deductions constituted a trade or business during 1996. In one sense petitioners’ argument here is unusual. Generally, a taxpayer seeks to avoid his or her real estate activity’s being classified as a trade or business in order to claim the benefit of lower capital gains rates on the sale or disposition of real property. See, e.g., Thompson v. Commissioner, 322 F.2d 122 (5th Cir. 1963). Here, petitioners claim that their real estate activities constituted a trade or business. The considerations in deciding whether a taxpayer’s activities are a trade or business are well defined. In Polakis v. Commissioner, 91 T.C. 660, 669-670 (1988), we stated: Determining whether a taxpayer’s activities rise to a level which constitutes “‘carrying on a business’ requires an examination of the facts in each case.” * * * Among the tests that courts have come to rely on in divining the nature of the taxpayer’s activities with respect to real estate are the following: the nature and purpose of the acquisition of the property and the duration of the ownership; the continuity of sales or sales-related activity over a period of time; the volume and frequency of sales; the extent to which the taxpayer or his agents have engaged in sales activities by developing or improving the property, soliciting customers, and advertising; and the substantiality of sales when compared to other sources of taxpayer’s income. [Citations omitted.]Page: Previous 1 2 3 4 5 6 7 8 9 Next
Last modified: May 25, 2011