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activity was “an active trade or business” or that it “has been
operated in a businesslike manner”. Both parties treated this
language as raising an issue under section 183(a), which provides
that “In the case of an activity engaged in by an individual or
an S corporation, if such activity is not engaged in for profit,
no deduction attributable to such activity shall be allowed” (the
section 183 issue). Alternatively, respondent determined that
“If the Schedule C activity is determined to be a legitimate
business,” the expenses were not ordinary and necessary business
expenses under section 162 (the section 162 issue).
On October 9, 1997, petitioner filed a petition to
redetermine the deficiencies, in which he alleged that each of
the proposed adjustments was erroneous. In respondent’s answer,
filed on November 24, 1997, respondent denied petitioner’s
allegations of error and also denied some of petitioner’s factual
allegations for lack of sufficient information.
The parties resolved most of the issues prior to trial,3
leaving just two issues to be tried: (1) Whether petitioner’s
3Prior to trial, the parties entered into two stipulations
of settled issues. In the first such stipulation, petitioner
conceded three of the previously disputed adjustments. In the
second such stipulation, petitioner conceded the adjustment with
respect to the exercise of stock options in Zila, Inc., and the
parties agreed on the disposition of adjustments relating to NOL
deductions and carrybacks for 1991 and 1993. In the stipulation
of facts filed just prior to trial, the parties resolved the sec.
162 issue with respect to petitioner’s claimed mining expense
deductions.
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