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Commissioner, 78 T.C. 642, 645 (1982), affd. without
opinion 702 F.2d 1205 (D.C. Cir. 1983). For this purpose,
the term "profit" means economic profit independent of tax
consequences. E.g., Ronnen v. Commissioner, 90 T.C. 74, 88
(1988); Herrick v. Commissioner, 85 T.C. 237, 255 (1985).
Generally, in the case of an activity to which section
183 applies, the deductions attributable to the activity
are grouped into two categories: Those that would be
allowable "without regard to whether or not such activity
is engaged in for profit" and those that would be allowable
"only if such activity were engaged in for profit." Sec.
183(b). Paragraph (1) of section 183(b) allows a taxpayer
to take the deductions in the first category without limit,
but paragraph (2) of section 183(b) limits the aggregate
amount of the deductions in the second category, i.e.,
deductions which are allowable only if the activity is
engaged in for profit, "to the extent that the gross income
derived from such activity for the taxable year exceeds the
deductions allowable by reason of paragraph (1)." Sec.
183(b)(2).
The depreciation deductions claimed by each
partnership under section 167 are allowed only if the
expenses were incurred in connection with an activity
that constitutes a trade or business of the taxpayer.
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