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determine whether his property could sustain commercial Coulter
pines. As of March 2001, petitioner still had not harvested any
trees, had not planted any new trees, and had not yet decided
which species of trees to plant so that he could begin his tree
farming business. Petitioner had not actually commenced the
business activity of tree farming in either of the years at
issue. Reems v. Commissioner, T.C. Memo. 1994-253.
Accordingly, petitioner’s “trees” activities on the property he
purchased in 1994 were not a functioning business during 1995 and
1996. Any expenses incurred by petitioner were in connection
with the research into and investigation of the business
potential of creating a tree farm; petitioner’s expenses are
fairly characterized as nondeductible start-up expenditures. Id.
Section 195(a) provides that no deduction shall be allowed
for start-up expenditures. Section 195(c)(1) defines start-up
expenditures as, among other things, any amount paid in
connection with creating an active trade or business, which, if
paid or incurred in connection with the operation of an existing
active trade or business, would be allowable as a deduction for
the taxable year in which paid or incurred.3
3We note that petitioner claimed a $771 deduction for taxes
on the Schedule F attached to his 1995 return, and a $67
deduction for mortgage interest on his 1996 Schedule F. Amounts
for which a deduction is allowed under sec. 163(a) and sec. 164
are not start-up expenditures. Sec. 195(c)(1). Similarly, sec.
263A does not prevent petitioner from taking a current deduction
for property taxes or mortgage interest. Sec. 263A(c)(5).
Respondent did not question whether the deductions claimed for
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