- 24 -
generating revenue. In Cabintaxi Corp. v. Commissioner, supra at
620, the taxpayer corporation was formed in 1981 for the
expressed purpose of selling, installing, and maintaining
automated transportation systems. In 1984, the taxpayer entered
into a distributorship with a German company to market in the
United States and Canada the “Cabintaxi” system developed abroad
by the German company. Id. Although the taxpayer never obtained
any customers for the system, it sought to deduct expenses in
1984 and 1985 as an ongoing trade or business. Id. at 618-620.
The Court of Appeals, disagreeing with this Court, held in favor
of the taxpayer. Id. at 620-621.
In reversing our decision below, the Court of Appeals noted
that the “Tax Court’s reasoning confuses business activity with
the purpose of the activity.” Id. at 620. The Court of Appeals
stated:
The principal purpose for which Cabintaxi was formed
was to make money, and to do this it had * * * to
sell, install, or maintain automated transit systems.
But before it could sell, install, or maintain its
first system, it had to sell the system, and to sell it
had to incur selling expenses. Those expenses were an
integral part of being in the business of selling
automated transit systems. [Id.]
Hence, the crucial fact that the German transportation system was
already developed and commercially available enabled the Court of
Appeals to equate the signing of the U.S. and Canadian
distribution agreement, coupled with prompt commencement of
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011