- 4 -
Gross receipts or sales $10
Cost of goods sold -0-
Gross profit 10
Advertising 275
Car and truck expense 7,351
Insurance 1,925
Supplies 14,761
Taxes and licenses 100
Utilities 502
Professional dues 225
Business use of home 154
Net profit (loss) (25,283)
In the notice of deficiency, respondent determined that the
activities listed on each of the Schedules C filed in 1996, 1997,
and 1998, and the “developmental research” Schedule C in 1999,
did not “constitute bona fide business ventures entered into for
profit”.2 Respondent accordingly disallowed the deductions
claimed for the expenses on each of these schedules and
recharacterized the gross profits shown thereon as “other
income”.
Under section 162(a), a taxpayer may deduct the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. A taxpayer is engaged in a
trade or business if the taxpayer is involved in the activity
with continuity and regularity and with the primary purpose of
making a profit. Commissioner v. Groetzinger, 480 U.S. 23, 35
(1987).
2The record is not clear why this determination was not made
with respect to the 1999 “mental health and other services”
Schedule C.
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Last modified: May 25, 2011