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five people gave petitioners $1,500 or $2,000 for generators to
take to their countries to determine if there was a market for
the system. All five returned the generators for a refund after
determining that they were too expensive to sell.
Petitioner continued making improvements to the system and
attempting to establish distributors. In 1996 petitioners sold a
generator for $1,500 for the personal use of one of the people
who had agreed to sell the generators in Vietnam.
Petitioners filed a joint Form 1040, U.S. Individual Income
Tax Return, for 1995 and Schedule C, Profit or Loss From
Business, for their activity with respect to Solarsys.
Respondent issued a notice of deficiency for petitioners’ 1995
taxable year disallowing deductions for all the Schedule C
expenses on the grounds that petitioners were not engaged in a
trade or business or activity for profit and determining that if
petitioners were engaged in such activity, the claimed expenses
are not ordinary and necessary. The expenses at issue are as
follows:
Advertising $94
Car & truck expenses 256
Depreciation 1,600
Office expenses 103
Rent 12,600
Travel 1,875
Meals & entertainment 100
Utilities 3,095
Other 724
Total 20,447
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Last modified: May 25, 2011