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Commissioner v. Idaho Power Co., 418 U.S. 1, 17 (1974); Sharon v.
Commissioner, 66 T.C. 515, 523 (1976), affd. 591 F.2d 1273 (9th
Cir. 1978).
To be deductible under section 162(a), an item must (1) be
paid or incurred during the taxable year, (2) be for carrying on
any trade or business, (3) be an expense (rather than a capital
expenditure), (4) be a necessary expense, and (5) be an ordinary
expense. Commissioner v. Lincoln Sav. & Loan Association, 403
U.S. 345, 352 (1971). Here, we are primarily concerned with the
second requirement; i.e., whether petitioner and Mrs. Wood
incurred the disallowed expenses while carrying on a trade or
business.
Petitioner contends that he and Mrs. Wood were in the trade
or business of dealing in real estate. He asserts that their
intent and commitment to be real estate dealers is evidenced by
(1) petitioner’s promoter activities with MSPR, Inc., (2)
petitioner’s and Mrs. Wood’s obtaining real estate licenses,
taking real estate education courses, and being employed by a New
Jersey real estate development company, (3) petitioner’s
registering the business name “Logistics Technology Group” in New
Jersey, establishing bank accounts in that business name, and
paying the expenses of their seven properties from that account,
and (4) petitioner’s advertising the New Jersey house, the
Florida house, and the undeveloped Florida land.
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