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expense from the SBA loan and later for the South Coast Thrift
loan should be reported and deducted on Schedule C to
petitioners’ tax return because the SBA and South Coast Thrift
loans were “business loans”. Mr. Collins concluded that
petitioner commenced conducting an active business at the 5401-9
S. Broadway property during 1992 because the property was used
for performances and events. Mr. Collins also concluded that
section 263A was not applicable to petitioner’s “fixing up” of
the building prior to 1992. In preparing petitioners’ 1990
through 1993 returns, Mr. Collins concluded section 195 permitted
petitioners to deduct currently the interest, real property
taxes, and other expenses petitioners paid with respect to the
5401-9 S. Broadway property.19
The characterization of various costs relating to
petitioner’s rehabilitation and improvement of the 5401-9 S.
Broadway building as deductible Schedule C expenses involves
analyzing and applying a technical area of tax law. Thus, it is
reasonable for a taxpayer to consult and rely on a certified
public accountant in determining how to treat such costs.
Petitioners relied upon Mr. Collins, their certified public
accountant, to determine the proper characterization and
deduction of these costs, and they furnished information to Mr.
19Under sec. 195(c), interest, taxes and certain research
and experimental expenditures are excluded from the definition of
startup expenditures.
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