Raymond J. Davis - Page 5

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               Upon examining petitioner's returns for the years in                   
          contest, the Commissioner determined that petitioner's income was           
          reportable as pension income and not as Schedule C income.                  
          Respondent also determined that because petitioner was not                  
          engaged in a trade or business or an activity for the production            
          of income, he is not entitled to the deductions claimed on the              
          Schedules C.                                                                
                                     Discussion                                       
               Because there is no factual dispute in this case, section              
          7491 is inapplicable.                                                       
               Section 162 allows a deduction for certain expenses incurred           
          "in carrying on" a trade or business.  During the years at issue,           
          petitioner was retired due to disability and not engaged in a               
          trade or business or an activity for profit.  Petitioner received           
          only pension income; he did not receive any gross receipts or               
          sales amounts.  But petitioner argues that he intended to reenter           
          the insurance business, at some point, and the expenses he                  
          incurred are therefore deductible business expenses.                        
               Petitioner's argument raises the issue of the "hiatus                  
          principle", where the temporary cessation of a trade or business            
          does not preclude a determination that the taxpayer was "carrying           
          on" a trade or business during that period.  See Haft v.                    
          Commissioner, 40 T.C. 2, 6 (1963); Sherman v. Commissioner, T.C.            
          Memo. 1977-301 (and cases cited therein).  Under the principle, a           






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