Lucian T. Baldwin, III - Page 25




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          LFI’s income, deductions, and losses may be appropriately                   
          resolved by applying sections 162 and 183, we direct our analysis           
          accordingly.                                                                
               A.  Sections 162 and 183                                               
               Under section 162, a taxpayer may deduct the ordinary and              
          necessary expenses paid or incurred during the taxable year in              
          carrying on his trade or business.  A taxpayer is engaged in a              
          trade or business if the taxpayer is involved in the activity (1)           
          with continuity and regularity, and (2) with the primary purpose            
          of making a profit.  Commissioner v. Groetzinger, 480 U.S. 23, 35           
          (1987); Antonides v. Commissioner, 893 F.2d 656, 659 (4th Cir.              
          1990), affg. 91 T.C. 656 (1988).                                            
               Petitioner has the burden of proving that LFI was engaged in           
          a trade or business and that LFI is entitled to the deductions              
          claimed.13  Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S.            
          79 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435                  
          (1934); Welch v. Helvering, 290 U.S. 111 (1933).  If petitioner             
          fails to establish LFI’s entitlement to the deductions under                




               13The Internal Revenue Service Restructuring & Reform Act of           
          1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726, added sec.                 
          7491(a), which is applicable to court proceedings arising in                
          connection with examinations commencing after July 22, 1998.                
          Under sec. 7491, Congress requires the burden of proof to be                
          placed on the Commissioner, subject to certain limitations, where           
          a taxpayer introduces credible evidence with respect to factual             
          issues relevant to ascertaining the taxpayer’s liability for tax.           
          In the instant case, petitioners have not raised the application            
          of this provision.  Further, the record indicates that the                  
          Commissioner’s examinations commenced before July 22, 1998.                 



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