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in order to satisfy the trade or business requirement of section
174, the record must demonstrate that the taxpayer’s prospects of
entering that trade or business are realistic. Zink v. United
States, 929 F.2d 1015, 1023 (5th Cir. 1991); Spellman v.
Commissioner, 845 F.2d 148, 149 (7th Cir. 1988), affg. T.C. Memo.
1986-403. Demonstrating a realistic prospect of entering a trade
or business requires proof of (1) the objective intent to enter
such trade or business, and (2) the capability of doing so.
Kantor v. Commissioner, 998 F.2d 1514, 1518-1519 (9th Cir. 1993)
(and cases cited therein), affg. on this issue and revg. on
another issue T.C. Memo. 1990-380.
“In order to qualify for the section 174 deduction, a
taxpayer’s existing or prospective business must be its own and
not that of another entity.” Id. at 1519. Putting it
differently, the record must show that the taxpayer is not merely
an investor in someone else’s trade or business but is (or is to
be) the conductor of its own trade or business. Harris v.
Commissioner, 16 F.3d 75, 78 (5th Cir. 1994), affg. T.C. Memo.
1990-80; Diamond v. Commissioner, 930 F.2d 372, 375-376 (4th Cir.
1991), affg. 92 T.C. 423 (1989); Green v. Commissioner, 83 T.C.
at 687; see Travers v. Commissioner, 21 F.3d 424, 73 AFTR 2d 1798
(4th Cir. 1994), affg. without published opinion Harris v.
Commissioner, T.C. Memo. 1990-80.
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