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business checking account for their alleged restaurant/nightclub
activity. Petitioners did not report any of the receipts from
admissions, the sale of food and beverages, or paid memberships
as income on their Schedules C for 1992 and 1993. Indeed, in
1991, litigation with South Coast Thrift had ensued, and
petitioners commenced a proceeding under chapter 11 of the
Bankruptcy Code with the Bankruptcy Court on March 18, 1992.
Petitioner did not begin operating the Bluesroom as a commercial
entertainment facility until October 28, 1994, shortly after
reaching a settlement with South Coast Thrift.
In Richmond Television Corp. v. United States, 345 F.2d 901,
907 (4th Cir. 1965), vacated per curiam on other grounds 382 U.S.
68 (1965), the Court of Appeals for the Fourth Circuit explained
that a trade or business within the meaning of section 162(a) is
one that “has begun to function as a going concern and performed
those activities for which it was organized.” In Walsh v.
Commissioner, T.C. Memo. 1988-242, affd. without published
opinion 884 F.2d 1393 (6th Cir. 1989), we quoted the above-cited
language in support of our conclusion that the taxpayer’s
restaurant “could not function as a going concern until its
opening to the public.” Since the restaurant did not open to the
public until a later year, we held that the taxpayer in Walsh was
not carrying on a trade or business in the year before its public
opening.
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