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and necessary business expenses of his horse breeding and
training activity. Accordingly, he argues, any amounts
attributable to the related items do not constitute income.
Section 108(e)(2) provides: “No income shall be realized
from the discharge of indebtedness to the extent that payment of
the liability would have given rise to a deduction.” In general,
a taxpayer may deduct ordinary and necessary expenses paid or
incurred in carrying on any trade or business. Sec. 162(a); see
also Commissioner v. Lincoln Sav. & Loan Association, 403 U.S.
345, 352 (1971); FMR Corp. & Subs. v. Commissioner, 110 T.C. 402,
414 (1998).
Petitioner asserts that he was in the trade or business of
breeding and training horses from 1983 until sometime in 1995.
Petitioner contends that he used most of the funds he borrowed
from the bank to finance the horse breeding activity.
Petitioner provided his own affidavit and the affidavit of his
accountant, Elliot Blum, to support his contention. Accordingly,
petitioner argues that the payment of the related items would
have given rise to a deduction under section 162(a) as ordinary
and necessary business expenses.
Respondent contends that petitioner has not established that
he used the borrowed funds for the horse breeding activity.
Respondent provided letters that petitioner wrote to the bank in
1988 and 1989 indicating that petitioner borrowed against his
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