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Respondent contends that petitioner neither engaged in a
trade or business within the meaning of section 162(a), nor an
active trade or business within the meaning of section 195(c),
during either of the years in issue. According to respondent,
any expenditures relating to petitioner’s “trees” activity are
nondeductible start-up expenses under section 195(a).
Section 162(a) allows a deduction for ordinary and necessary
expenses of carrying on a trade or business. In order for the
expenses to be deductible under section 162, the expenses must
relate to a trade or business functioning at the time the
expenses were incurred. Hardy v. Commissioner, 93 T.C. 684, 686
(1989). A taxpayer has not “engaged in carrying on any trade or
business within the intendment of section 162(a) until such time
as the business has begun to function as a going concern and
performed those activities for which it was organized.” Richmond
Television Corp. v. United States, 345 F.2d 901, 907 (4th Cir.
1965), vacated and remanded on other grounds 382 U.S. 68 (1965).
“Carrying on a trade or business” requires a showing of more than
initial research into or investigation of business potential.
Dean v. Commissioner, 56 T.C. 895, 902 (1971). The business
operations must have actually commenced.
Petitioner was not “carrying on a trade or business” in 1995
or 1996. In neither of the years at issue did petitioner
commercially harvest any trees or even decide which species of
tree to plant. Petitioner did conduct a pilot planting of
Coulter pine trees, but the only purpose of the planting was to
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