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was entitled to claim itemized deductions for operating expenses
only to the extent of the $1,124 of reported gross income.2
Discussion
Under section 183(b)(2), if an individual engages in an
activity not for profit, deductions relating thereto are
allowable only to the extent gross income derived from the
activity exceeds deductions that would be allowable under section
183(b)(1) without regard to whether the activity constitutes a
for-profit activity. See Allen v. Commissioner, 72 T.C. 28, 32-
33 (1979).
The taxpayer generally bears the burden of establishing that
his or her activities were engaged in for profit. Rule 142(a).3
The relevant question is whether the taxpayer had a “good faith
expectation of profit”. Burger v. Commissioner, 809 F.2d 355,
2 The $12,894.71 of expenses claimed on petitioner’s 2002
Schedule C bears little similarity to the expenses listed on his
2002 “budget”. For instance, the largest claimed expense on his
2002 Schedule C was $6,144.41 for car and truck expenses; by
contrast, his 2002 “budget” lists $2,300 for “transportation” and
“travel” expenses including tolls, parking, and meals. The
largest single item on his 2002 “budget” was for $3,000 to
“Purchase product”. By contrast, on his Schedule C, petitioner
reported no purchases or inventory.
3 In certain cases, the burden of proof shall be on the
Commissioner if, in any court proceeding, the taxpayer introduces
credible evidence with respect to any factual issue relevant to
ascertaining the liability of the taxpayer for any tax imposed by
subtit. A or B of the Code. Sec. 7491(a)(1). Because we decide
this case on the preponderance of the evidence, rather than by
reference to the placement of the burden of proof, we do not
decide whether petitioner has met the requirements under sec.
7491 to shift the burden of proof to respondent.
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