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business in 2003 and asserts he is entitled to deduct the car and
truck expense of $3,977 and the labor expense of $7,070 under
section 162 and depreciation of $3,479 for the use of the Ford
Taurus under section 167.
Section 162(a) allows a deduction for the ordinary and
necessary expenses of carrying on a trade or business. For a
taxpayer to deduct expenses under section 162(a), the expenses
must relate to a trade or business functioning at the time the
expenses are incurred. Hardy v. Commissioner, 93 T.C. 684, 686
(1989), affd. in part and remanded in part per order (10th Cir.,
Oct. 29, 1990). A taxpayer is not carrying on a trade or
business under section 162(a) until the business is functioning
as a going concern and performing the activities for which it was
organized. Richmond Television Corp. v. United States, 345 F.2d
901, 907 (4th Cir. 1965), vacated and remanded on other grounds
382 U.S. 68 (1965). Carrying on a trade or business requires a
showing of more than initial research into or investigation of
business potential. Dean v. Commissioner, 56 T.C. 895, 902
(1971); McKelvey v. Commissioner, T.C. Memo. 2002-63, affd. 76
Fed. Appx. 806 (9th Cir. 2003). Business operations must have
actually commenced. McKelvey v. Commissioner, supra. Petitioner
has the burden of proving he began operating his software
development business in 2003. See Rule 142(a).
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