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Respondent determined a deficiency of $5,920 in petitioners’
1995 Federal income tax. The issue for decision is whether
petitioners are entitled to various deductions claimed on a
Schedule C, Profit or Loss From Business, included with their
1995 Federal income tax return.
Background
Some of the facts have been stipulated and are so found.
Petitioners are husband and wife. They filed a timely 1995 joint
Federal income tax return. At the time the petition was filed,
petitioners resided in Alameda, California. References to
petitioner are to Tod McMullen.
On June 25, 1984, petitioner applied for a United States
patent for an auxiliary or secondary oil filtration system for
automobile internal combustion engines (the system). His
application was approved and he was issued a patent on December
31, 1985. During 1985, petitioner consulted with a professional
income tax return preparer and was advised in a letter dated
August 9, 1985, how expenditures made in connection with the
patent process could be treated for Federal income tax purposes.
Petitioner unsuccessfully attempted to license the patent to
the Amway Corporation in 1986. Sometime thereafter, petitioner
decided to manufacture and market the system. The amount of time
and effort petitioner devoted to this pursuit over the years is
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