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The Lease does not show that petitioners and TUP 130
intended to treat the entire cost of the Improvements as a rent
substitute. The Lease contains provisions which give petitioners
a rent holiday for the first 6 months after the day the Bakery
was first opened for business to the public; these provisions
underlie the parties’ stipulation as to the $18,739. Beyond
these provisions, however, the Lease is silent as to whether
petitioners and TUP 130 intended to treat the remaining cost of
the Improvements as a rent substitute.
The surrounding circumstances also do not show that
petitioners and TUP 130 intended to treat the cost of the
Improvements as a rent substitute beyond the 6-month rent
holiday. Rather, petitioners’ 1995 tax return, certain of
petitioners’ proposed findings of fact and statements on brief,
and a portion of Michael’s testimony belie petitioners’
contention that they should be allowed to deduct the cost of the
Improvements under section 162(a)(3) as rent expense.
Petitioners did not report any rent or lease expenses on the
Schedule C attached to their 1995 tax return. Petitioners
claimed a deduction of $103,388 for “repairs and maintenance” on
the Schedule C attached to the 1995 tax return; the $103,388
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