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1996-32 (“Excessive rental payments do not constitute ordinary
and necessary business expenses and are therefore not
deductible.”). Only the reasonable portion of the rent is
allowed as a deduction. Hopkins v. Commissioner, T.C. Memo.
2005-49. There is nothing in the record which indicates that any
portion of the rent paid by WTS was reasonable.
Finally, petitioner testified that the commissions and fees
expense of $38,372 in 2000 represents the cost of computer
software that he commissioned a company called “R Systems” to
develop. The software was designed to aid in the electronic
filing of State sales tax returns. Petitioner had hoped to sell
or lease the software to SBOE but was unable to do so.
For the same reasons discussed supra, it is not clear that
WTS paid or incurred the cost of acquiring the software. Even if
WTS did pay or incur this cost, software generally must be
depreciated rather than currently deducted. See secs. 167(f),
197; sec. 1.167(a)-14(b)(1), Income Tax Regs. The period for
depreciation of an asset begins when the asset is placed in
service. Sec. 1.167(a)-10(b), Income Tax Regs. The record does
not indicate when, if ever, WTS placed the software in service.
Accordingly, petitioners cannot deduct any costs associated with
the software. See Hahn v. Commissioner, T.C. Memo. 1990-43.
We conclude that the WTS-related expense deductions that
petitioners claim are not ordinary and necessary business
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