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petitioner for consultation services.3 As stated in the notice
of deficiency, the expenses were disallowed for the reason that
“it has not been established that the expenses were incurred and
paid”, and, additionally, “it has not been established that the
activity described in Schedule C for the taxable years 2000 and
2001 constitutes a bona fide trade or business venture entered
into for profit.”
The purpose of the purported activity, as described by
petitioners, was to sell oil field equipment from the United
States to oil and gas exploration companies in Colombia, South
America. Petitioners began reporting this activity on their
Federal income tax return for 1994. They claimed losses from
this activity as follows:4
3Under sec. 183(b)(2), if an activity is not engaged in for
profit, deductions for expenses are allowable only to the extent
of the gross income derived from such activity. Since
petitioners conceded that the $3,000 in income was not related to
the activity, none of the expenses is allowable as deductions to
the extent of that reported income.
4The record does not show whether petitioners reported any
gain or loss from this activity for the years 1994, 1995, and
1996. In the stipulation, petitioners agreed that their claimed
losses for 2000 should be reduced from $41,492 to $32,646, and
the 2001 loss should be reduced from $44,225 to $36,240. With
these concessions, the total claimed losses would be $199,110
instead of the $215,941 shown above.
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Last modified: May 25, 2011