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report any farm income; the entire reported loss was due to
claimed expenses. The expenses petitioners reported on Schedule
F were: Car and truck expenses ($3,227), chemicals ($850),
custom hire ($9,500), depreciation ($3,449), fertilizers ($550),
gasoline ($350), insurance ($1,200), repairs and maintenance
($425), supplies purchased ($150), taxes ($250), and tractor
repairs ($165).
In the notice of deficiency, respondent determined that
petitioners did not substantiate any of the items reported on
Schedule F and therefore none were allowable. At trial,
respondent conceded petitioners’ entitlement to deduct $8,186 for
custom hire, $1,850 for depreciation, $126.48 for taxes, and $350
for gasoline, and petitioners conceded that $1,850 of claimed
depreciation expense was not allowable.
A taxpayer who is carrying on a trade or business generally
may deduct ordinary and necessary expenses paid or incurred in
connection with the operation of the 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). Respondent does not dispute that petitioners’
farming activity qualifies as a trade or business and that the
expenses from this activity, if incurred, were ordinary and
necessary. Thus, we need address only whether the claimed
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