- 25 -
Respondent concedes that petitioners’ attempt to renovate
and retrofit the 5401-9 S. Broadway property was motivated by
their intention to make a profit through the operation of the 5-4
Ballroom and/or the Bluesroom. Respondent contends, however,
that petitioners’ Schedule C business activity had not actually
commenced during the period from 1990 through 1993. We examine
the relevant time periods below.
A. 1990 and 1991
The expenses petitioners allegedly incurred during 1990 and
1991 in connection with their restaurant/nightclub activity are
not deductible under section 162(a) “unless the taxpayer is
engaged in an ongoing business at the time the expense is
incurred.” Kantor v. Commissioner, 998 F.2d 1514, 1518 (9th Cir.
1993), affg. and revg. on other issues T.C. Memo. 1990-380; see
also Jackson v. Commissioner, 86 T.C. 492, 514 (1986), affd. 864
F.2d 1521 (10th Cir. 1989), in which we stated:
Section 162 does not allow deductions for otherwise
deductible expenses until such time as the trade or
business begins to function as a going concern even
though the taxpayer may have made a firm decision to
enter into business and has expended considerable sums
of money in preparation of commencing business.
The record clearly establishes that petitioners had not yet
opened the restaurant/nightclub facility during 1990 and 1991.
Petitioners were still refurbishing and retrofitting the building
in 1990 and 1991 and otherwise preparing to start their business.
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011