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active trade or business are start-up expenditures. Sec. 195(c).
Section 195(a) generally precludes taxpayers from deducting
start-up expenditures. However, for the years at issue, section
195(b) generally allowed taxpayers to elect to amortize start-up
expenditures over a period not less than 60 months, beginning (at
the earliest) in the year in which the active trade or business
commences.5 If the start-up expenditures relate to an endeavor
that never rises to the status of an active trade or business, a
taxpayer may not amortize the start-up expenditures. See Bernard
v. Commissioner, T.C. Memo. 1998-20.
In the matter before us, respondent’s notice of deficiency
makes no mention of section 195, the language of section 195, or
the principles upon which section 195 rests. The record does not
establish that respondent raised section 195 during the
examination of petitioner’s income tax returns or otherwise
notified petitioner that section 195 was relevant to his
determination. Respondent’s section 195 argument is therefore
new matter, and respondent bears the burden of proof with respect
to section 195. Rule 142(a).
5 In 2004, Congress amended sec. 195(b) to allow electing
taxpayers to deduct start-up expenditures over a period of 180
months beginning with the month in which the active trade or
business begins. American Jobs Creation Act of 2004, Pub. L.
108-357, sec. 902(a)(1), 118 Stat. 1651. Sec. 195 applies as so
amended to amounts paid or incurred after Oct. 22, 2004.
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