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for the taxable year in which the trade or
business begins (including extensions thereof).
(2) Scope of election.--The period selected
under subsection (b) shall be adhered to in
computing taxable income for the taxable year for
which the election is made and all subsequent
taxable years.
No regulations further defining either startup expenditures
or the beginning of an active trade or business have been
promulgated under section 195.7 As regards the question of
whether a taxpayer is actively engaged in a trade or business,
the U.S. Supreme Court has established the general rule that
resolution of this issue requires examination of the facts in
each particular case. Commissioner v. Groetzinger, 480 U.S. 23,
36 (1987). Concerning pertinent expenditures, legislative
history affords examples of expenses falling within the intended
operation of the statute:
eligible expenses consist of investigatory costs
incurred in reviewing a prospective business prior to
reaching a final decision to acquire or to enter that
business. These costs include expenses incurred for
the analysis or survey of potential markets, products,
labor supply, transportation facilities, etc. Eligible
expenses also include startup costs which are incurred
subsequent to a decision to establish a particular
business and prior to the time when the business
begins. For example, startup costs include
advertising, salaries and wages paid to employees who
are being trained and their instructors, travel and
other expenses incurred in lining up prospective
distributors, suppliers or customers, and salaries or
7 Regulations do prescribe procedures for making the
pertinent election, effective for elections filed on or after
Dec. 17, 1998. Sec. 1.195-1, Income Tax Regs.
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