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Unfortunately, because the materials did not fit under the
requirements of building codes, petitioner could not sell the
idea to investors. The cost of getting building codes revised
was prohibitive.
During 1999, petitioner wrote letters to individuals and
entities in an attempt to cover the costs of obtaining building
permits to build houses and to secure investors in order to begin
manufacturing the building panels.
During 1999, Sax-Brook did not pay any employees or officers
to perform services for the business. Petitioner was not
reimbursed by Sax-Brook for any expenses incurred by him in
connection with the corporation during 1999. Sax-Brook did not
file a corporate income tax return with respect to 1999 with the
Internal Revenue Service.
Respondent in the notice of deficiency, among other things,
disallowed petitioner’s Schedule C deductions in full.
Respondent determined that petitioner did not establish that the
Schedule C expenses were ordinary and necessary business expenses
and that he did not substantiate the expenses.
Section 162(a) allows a deduction for all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business. To be deductible as a
business expense, the expenditure must relate to activities which
constitute the current carrying on of an existing trade or
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Last modified: May 25, 2011