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II. Section 195
As noted supra, taxpayers may neither deduct nor amortize
section 195 start-up expenditures if the activities to which the
expenditures relate fail to become an “active trade or business”.
Congress, through section 195(c)(2)(A), authorized the Secretary
to issue regulations to guide the determination of when an active
trade or business begins. No such regulations have yet been
issued.
In determining when an activity becomes an “active trade or
business” for the purpose of section 195(a), this Court has
sought guidance from cases interpreting the “engaged in a trade
or business” requirement for deduction under section 162. See,
e.g., Weaver v. Commissioner, T.C. Memo. 2004-108. For the
purpose of section 162, the U.S. Supreme Court has held that the
question of whether a taxpayer is “engaged in a trade or
business” requires examination of the facts in each particular
case. Commissioner v. Groetzinger, 480 U.S. 23, 36 (1987). To
be engaged in a trade or business, a taxpayer must: (1)
Undertake an activity intending to make a profit; (2) be
regularly and actively involved in the activity; and (3) actually
have commenced business operations. McManus v. Commissioner,
T.C. Memo. 1987-457, affd. without published opinion 865 F.2d 255
(4th Cir. 1988). A taxpayer is not engaged in a trade or
business “until such time as the business has begun to function
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Last modified: November 10, 2007