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were in fact expenses incurred by or on behalf of RRI, such
expenses are expenses of that corporation and are not deductible
by petitioners on their individual return.
During petitioners’ testimony regarding the operation of RRI
and certain research-related expenses which were incurred, he
interchangeably referred to the corporation and the Schedule C
business. If indeed these expenses were incurred in a trade or
business which was separate from the trade or business of the
corporation, petitioners are not entitled to either the research-
related miscellaneous itemized deductions or the Schedule C
deductions for the reasons discussed below.
A taxpayer generally may deduct the ordinary and necessary
expenses paid or incurred during the taxable year in carrying on
his trade or business. Sec. 162(a). 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). A taxpayer also is “allowed as a deduction all the
ordinary and necessary expenses paid or incurred during the
taxable year * * * for the production or collection of income”.
Sec. 212(1). However, a taxpayer generally may not deduct
personal, living, or family expenses. Sec. 262(a).
We first address petitioners’ miscellaneous itemized
deduction for “house expense” of $24,000. Petitioners calculated
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Last modified: May 25, 2011