- 4 -
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
Page: Previous 1 2 3 4 5 6 7 Next
Last modified: May 25, 2011