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petitioners and their family or because petitioners failed to
provide the required substantiation.
Petitioners argue that respondent has refused to recognize
the separate existence of Flair Racing as a business entity.
Petitioners point out that both Flair Enterprises and Flair
Racing are S corporations, and all income and deductions flow
through to petitioners. However, respondent’s disallowance of
the disputed deductions is founded upon the determination that
Flair Racing was not actively conducting business operations
during the years in issue and upon general tax law principles
defining the limits of deductible business expenses.
The parties agree that Flair Racing was incorporated to
shield petitioners and Flair Enterprises from liability
associated with the Legends race cars. However, petitioners
presented no evidence of any business activities in which Flair
Racing engaged during the years in issue. Petitioner testified
that the Legends race cars were an enjoyable hobby for himself
and his sons. No racing activities occurred during the years in
issue, and the Legends race cars were not publicly displayed
anywhere outside of the Flair Body Works locations. We are not
convinced that Flair Racing was carrying on business during the
years in issue.
Funds deposited in Flair Racing’s bank account and included
as income on Flair Racing’s Federal income tax returns consisted
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