- 7 -
be construed so as not to defeat the intention of another or to
frustrate the Act as a whole”); Brons Hotels, Inc. v.
Commissioner, 34 B.T.A. 376, 381 (1936) (“The various sections of
the Act should be so construed that one section will explain and
support and not defeat or destroy another section”). Once her
section 212 activity has begun, the deduction of ordinary and
necessary expenses paid or incurred in that activity is not
precluded by section 195 regardless of whether that activity is
subsequently transformed into a trade or business. This
interpretation is consistent with section 195 and its legislative
history.
In the 1980s several Federal Courts of Appeals were asked to
decide whether expenses paid or incurred during the preoperating
phase of a profit-seeking activity were deductible or had to be
capitalized. Each of the cases involved tax years arising before
the effective date of section 195. Six Courts of Appeals held
that, because section 212 and section 162 are in pari materia,
preopening expenses7 for either a section 212 activity or a
7 Before the enactment of sec. 195 in the Miscellaneous
Revenue Act of 1980, Pub. L. 96-605, sec. 102(a), 94 Stat. 3522,
a taxpayer was required to capitalize investigatory expenses and
startup costs of a new business under a body of law known as the
pre-opening expense doctrine, which was based upon sec. 162 and
the clear reflection of income principle. Richmond Television
Corp. v. United States, 345 F.2d 901, 904-907 (4th Cir. 1965),
vacated per curiam on other grounds 382 U.S. 68 (1965). Under
this doctrine, a taxpayer could recover preopening expenses only
by depreciating them over the life of the asset or deducting them
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011