§212 — Expenses for production of income

Thereafter in 1986 Congress, in effect overruling Gustin, enacted section 274(h)(7) to curb taxpayers from claiming deductions under section 212 for expenses related to conventions, seminars, or other meetings related to financial planning .

29, 1990), we overruled our Opinion in Hoopengarner v.

Petitioner implicitly argues that he is entitled to these deductions under section 212 ifsection 162 does not apply.

They contend, however, that Gilmore and Patrick are distinguishable as involving taxpayers whose claimed deductions were based on specific language ofthe Code, now found in section 212(2), allowing a deduction for expenses paid or incurred "for the * * * conservation * * * of property held for the production ofincome".

expenses but rather primarily personal expenses .8 Characterizing respondent's discussion of the trade, or business requirement of section 162(a) as "inapposite" and thereby implicitly conceding that the DPM nonrental activity wa s not a,trade or business, petitioner contends on brief that DPM's deduction of the .disputed expenses was based not upon section 162(a) butupon section 212(2) .9 Petitioner contends that DPM' s 'Respondent argues alternatively th

For this purpose, a "trade or business " is generally defined as any activity in connection with a trade or business or any activity for the production of income under section 212 . Sec . 469(c)(6) . In general , a rental activity is treated as a passive activity regardless of whether the taxpayer materially participates . Sec . 469 ( c)(2),(4) . If a taxpayer is described in section 469 ( c)(7), section 469(c)( 2) does not apply, and the taxpayer' s rental activity , if conducted as a trade or

Section 62(a)(4) allows a deduction for expenses allowed under section 212 if the expenses are attributable to property held for the production of rents or royalties. Mrs. Ross did not receive rents or royalties from the trusts. Therefore, this section does not apply.

With respect to the payments to the law firms, as well as the payments to the accounting firm related to grand jury testimony, the Court need not decide whether the legal claim was inherently personal or arose in connection with petitioner’s status as an employee of the Morgan County Commission, because the expenses would not be deductible under either circumstance.

We express no opinion regarding CFF's operations for any taxable year other than 2013.

But before engaging in the "ordinary and necessary" inquiry, taxpayers must pass the section 183 test.¹ I Because we decide this issue on a preponderance ofthe evidence, we need not decide whetherthe burden ofproofshifts to the Commissioner under section (continued...) - 3 - [*3] Section 183(a) generally disallows any deduction attributable to an activity "not engaged in for profit," and is aimed at disallowing the deduction ofthe expenses ofa hobby that a taxpayermight try to use t

But before engaging in the "ordinary and necessary" inquiry, taxpayers must pass the section 183 test.¹ I Because we decide this issue on a preponderance ofthe evidence, we need not decide whetherthe burden ofproofshifts to the Commissioner under section (continued...) - 3 - [*3] Section 183(a) generally disallows any deduction attributable to an activity "not engaged in for profit," and is aimed at disallowing the deduction ofthe expenses ofa hobby that a taxpayermight try to use t

But before engaging in the "ordinary and necessary" inquiry, taxpayers must pass the section 183 test.¹ I Because we decide this issue on a preponderance ofthe evidence, we need not decide whetherthe burden ofproofshifts to the Commissioner under section (continued...) - 3 - [*3] Section 183(a) generally disallows any deduction attributable to an activity "not engaged in for profit," and is aimed at disallowing the deduction ofthe expenses ofa hobby that a taxpayermight try to use t

Because he did not materially participate in the rental activities, we need not decide whetherpetitioner's activities as a licensed sales agent qualify as a "real property trade or business" under section 469(c)(7)(B) and (C).

We disagree with petitioners’ claim that Congress “tweaked” the section 162 profit motive standard for purposes of section 183.

We disagree with petitioners ., They earned $165 in interest income, and it was credited to their accounts .

As defined in the pertinent regulations, the term "income" for the purpose ofsection 212 includes not merely income ofthe taxable year but also income which the taxpayerhas realized in a prior taxable year or may realize in subsequent taxable years and is not confined to recurring income but applies·as well to gains from the disposition ofproperty.

The term "income" as it is used in section 212 "is not confined to recurring income" but may also apply to gains from the disposition of property.

Section 212 provides for a deduction for all ordinary and necessary expenses paid or incurred for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income.

Schedule E Deductions Section 212 provides a deduction for the ordinary and necessary expenses paid or incurred for the management of property held for the production of income.

Accordingly, we hold that petitioners are entitled to a deduction of$109 for tax preparation fees.

Section 212 provides, in relevant part, that an individual taxpayer can deduct all the ordinary and necessary expenses paid or incurred (1) for the - 24 - [*24] production or collection ofincome or (2) for the management, conservation, or maintenance ofproperty held for the production ofincome.

In the FPAAs respondent disallowed deductions claimed pursuant to section 162 and instead allowed the deductions pursuant to section 212, reflecting respondent's determination that Lender Management was not engaged in carrying on a trade or business.

In the FPAAs respondent disallowed deductions claimed pursuant to section 162 and instead allowed the deductions pursuant to section 212, reflecting respondent's determination that Lender Management was not engaged in carrying on a trade or business.

Accordingly, we hold that Barnes is not entitled to a charitable-contribution deduction for 2009 in excess ofthe $16,381 allowed by the IRS in the notice ofdeficiency.

Section 212 provides for a deduction for expenses paid or incurred in connection with an activity engaged in for the production or collection ofincome, or for the management, conservation, or maintenance ofpropertyheld for the production ofincome.

Accordingly, we hold that petitioners are entitled to a $2,862 deduction for unreimbursed business expenses.

Under these circumstances, we hold that petitioners did not meet their burden ofproofto substantiate the repair expenses.

- 5 - [*5] OPINION In general, a taxpayermay not claim deductions that would otherwise be allowable (e.g., pursuant to section 212) relating to the use ofa dwelling unit as a residence.

However, a serious lack ofeffort to rent or sell a taxpayer's formerpersonal residence indicates that the property was not held for the production ofincome pursuant to section 212.

Section 212 provides (in relevant part) that an individual taxpayer can deduct all the ordinary and necessary expenses paid or incurred (1)"for the production or collection ofincome" or (2)"forthe management, conservation, or maintenance of property held for the production ofincome".

-,15 - [*15] profit pursuant to section 212.

We hold they are not; and (2) whether petitioners are liable for the accuracy-related penalties under section 6662.

We hold that they are not.

Petitioners failed to argue that the Florida condominium was held for the production ofincome pursuant to section 212.

Van Wickler's payments was made, pursuant to section 212, for allowable ordinary and necessary expenses, the record fails to provide a rational basis by which we could allocate deductible and nondeductible expenses.

Respondent' lists the following expenses as substantiated : Expense Amount substantiated Insurance $529 Office expense 18 6 Rent of other busines s property 1,200 Supplies 1,020 Tools 1,570 Training certifications 313 Professional subscription 110 Total 4,928 Although we hold that in 2002 and 2003 petitioner's'aircraft maintenance activity did not constitute a trade or business under section 162 or an activity for the production o f income under section 212, under section 183(b)(2 ) petitioner's

we hold that petitioner's fundraising activity was not a trade or business during 2003 through 2005 .

212 provides that an individual is allowed as a deduction all the ordinary and necessary expenses incurred during the taxable year for the production or collection of income .

For reasons discussed more fully below, we find that petitioner was not engaged in the activities at issue with the necessary profit objective, and consequently, we hold for respondent .

However, - 8 - under certain circumstances, an investor’s expenses may be deductible pursuant to section 212 if incurred in the production of income.

Section 212 provides for a deduction for expenses paid or incurred in connection with an activity engaged in for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income.

Section 212 provides a deduction for expenses paid or incurred in connection with an activity engaged in for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income.

Section 212 provides a deduction for expenses paid or incurred in connection with an activity engaged in for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income.

We hold, therefore, that petitioner failed to meet his burden of proof.

Section 212 provides a deduction for all ordinary and necessary expenses paid or incurred with respect to management, conservation, and maintenance of property held for production of income, including real property.

Section 212 provides a deduction for all ordinary and necessary expenses paid or incurred with respect to management, conservation, and maintenance of property held for production of income, including real property.

Schedule E Deductions Section 212 provides a deduction for all ordinary and necessary expenses paid or incurred with respect to management, conservation, and maintenance of property held for production of income, including real property.

- 8 - Section 212 provides a deduction for all ordinary and necessary expenses paid or incurred with respect to management, conservation, and maintenance of property held for the production of income, including real property rental.

Held, further, W may deduct, pursuant to section 212(1), I.R.C., legal and collection expenses attributable to the collection of taxable income.

Section 212 governs the deductibility of litigation costs as an itemized deduction, when the costs are incurred as a nonbusiness profit-seeking expense.

Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” In general, the Commissioner’s determination set forth in the notice of deficiency is presumed correct.

Two types of above-the-line deductions are a section 162(a) deduction (i.e., ordinary-and-necessary business expenses of self- employed taxpayers) and a section 212 deduction attributable to the production of rents. See § 62(a)(1), (4). A section 163(a) deduction for interest expenses is not an above-the-line deduction under section 62(a) and is therefore an itemized deduction. § 63(d). However, an interest expense attributable to a business is an above-the-line deduction under section 162(a). S

They used the credit cards for both personal and business expenses, failed to adequately distinguish the expenses as personal verus business, and deducted personal expenses. They lacked adequate business records for a substantial portion ofthe disputed deductions. See sec. 6001. Section 162(a) permits taxpayers to deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business. See Commissioner v. Lincoln Sav. & Loan Ass'n, 403 U.S. 345, 352 (1971). Taxpayers may also

They used the credit cards for both personal and business expenses, failed to adequately distinguish the expenses as personal verus business, and deducted personal expenses. They lacked adequate business records for a substantial portion ofthe disputed deductions. See sec. 6001. Section 162(a) permits taxpayers to deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business. See Commissioner v. Lincoln Sav. & Loan Ass'n, 403 U.S. 345, 352 (1971). Taxpayers may also

They used the credit cards for both personal and business expenses, failed to adequately distinguish the expenses as personal verus business, and deducted personal expenses. They lacked adequate business records for a substantial portion ofthe disputed deductions. See sec. 6001. Section 162(a) permits taxpayers to deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business. See Commissioner v. Lincoln Sav. & Loan Ass'n, 403 U.S. 345, 352 (1971). Taxpayers may also

They used the credit cards for both personal and business expenses, failed to adequately distinguish the expenses as personal verus business, and deducted personal expenses. They lacked adequate business records for a substantial portion ofthe disputed deductions. See sec. 6001. Section 162(a) permits taxpayers to deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business. See Commissioner v. Lincoln Sav. & Loan Ass'n, 403 U.S. 345, 352 (1971). Taxpayers may also

They used the credit cards for both personal and business expenses, failed to adequately distinguish the expenses as personal verus business, and deducted personal expenses. They lacked adequate business records for a substantial portion ofthe disputed deductions. See sec. 6001. Section 162(a) permits taxpayers to deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business. See Commissioner v. Lincoln Sav. & Loan Ass'n, 403 U.S. 345, 352 (1971). Taxpayers may also

Petitioner apparently understands and does not seem to dispute respondent's argument that expenses described in, and otherwise deductible pursuant to section 162(a), as applicable to an employee, or section 212 must be claimed on a Schedule A.

212; Commissioner v. Groetzinger, supra at 35 ("to be engaged in a trade or business [within the meaning of section 162(a)] * * * the taxpayer's primary purpose for engaging in the activity must be for income or profit"). Because neither section 162(a) nor section 212 applies to petitioner, the preopening expense doctrine does not operate to r

(d). We hold that the interest is investment interest and that petitioners have not shown that they received any investment income. Sec. 163(d). 3. Whether petitioners may deduct the interest at issue as an expense for the production of income under section 212. We hold they may not. 4. Whether petitioners may deduct the interest at issue as qualified residence interest under section 163(h)(2)(D) and (3). We hold that they may not. - 3 - Section references are to the Internal Revenue Code in eff

- 12 - section 212.” Accordingly, section 183 is considered in pari materia with sections 162 and 212.

necessary expenses. We hold that they may not. 3. Whether petitioners’ advances to Cabana Boy were made to produce or collect income or for the management, conservation, or maintenance of property held to produce income and are thus deductible under section 212. We hold that they are not. 1 Respondent contends that petitioners did not advance or pay that amount to or on behalf of Cabana Boy. Based on our resolution of the issues in dispute, we need not decide whether the amount petitioners claim

carrying on Mr. Syphrett's trade or business as an employee of Intrastate, see sec. 162, or (2) an expense for the production or collection of income, or the management, conservation, or maintenance of property held for the production of income, see sec. 212. Respondent counters that all of the settlement proceeds belonged to petitioners, and that they transferred the $497,667 amount to Intrastate in an attempt to shelter this amount from - 9 - taxation by use of large deductions that were avail

In addition, the deductions - 8 - are not allowed pursuant to Internal Revenue Code Section 212 because it has not been established that the property is held for the production of income.

We hold: (1) Petitioner was engaged in a trade or business in 1986; (2) petitioner (a) was not engaged in a trade or business in 1991, but (b) did incur expenses in connection with property held for the production of income within the meaning of section 212; and (3) petitioner is not liable for a negligence penalty under section 6662.2 Rule references are to the Tax Court Rules of Practice and Procedure.

Respondent contends that if the $35,001 settlement is includible in gross income—which we agree it is in part—then the legal fees incurred in obtaining the settlement could be deductible under section 212 as expenses incurred for the production or collection of income.

Section 212 also allows 14 The Martins also argue that “[i]f the referenced [Schedule C] expenses, are moved to Schedules A, only then would the NOL be an issue in this case, also raising the specter of whether an ‘NOL Carryforward,’ would apply to ‘vitiate or offset’ any claimed SE TAX.” But as the Commissioner points out, “section 1402(a)(4) proh

His alternative position ofdeductibilityunder section 212 for the production or collection ofincome is also without merit.

x preparation fees of$250 on the tax return. At trial, petitioners submitted a copy ofa canceled check for $200 paid to their accountant, Larry Word, dated May 20, 2013. Therefore, petitioners are entitled to deduct tax preparation fees of$200 under section 212(3). -23- J. Accuracy-Related Penalty Respondent determined an accuracy-related penalty of$1,168. Pursuant to section 6662(a) and (b)(1) and (2) a taxpayer may be subject to an accuracy- related penalty for an underpayment attributable to,

Such deductible expenses include expenses incurred in connection with the preparation oftax returns. See sec. 1.212-1(a)(1), Income Tax Regs. We find credible petitioner's testimony that he incurred a $60 expense in preparing his tax - 11 - return. Accordingly, we find that petitioner is entitled to deduct $60 in tax return preparatio

cessary expenses paid or incurred during the taxable year for the management, conservation, or maintenance ofpropertyheld for the production ofincome. A taxpayermay deduct properly substantiated repair expenses for properties held out for rent under section 212. A taxpayer claiming a deduction on a Federal inconte tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense to which the deduction relates has been - 8

With respect to either section 162 or section 212 the taxpayermust demonstrate a profit objective for the activity in order to deduct associated expenses.

ordingly, the burden ofproofremains on petitioner. - 9 - I. LegalFees Petitiorier contends that the legal expenses he reported on his 2008 and 2009 returns were paid in connection with.litigation to collect income and are therefore deductible under section 212. Respondent maintains, however, that petitioner's claimed,legal expenses are nondeductible because those expenses-derive from a suit that originated in a personal or family matter and therefore are personal, living, or family expenses with

Notwithstanding these inconsistencies, we accept her testimony that she paid $150 in 2006, and that amount is allowable as a miscellaneous deduction under section 212(3), subject to the 2% ofadjusted gross income floor ofsection 67(a).

- 7 - allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, and section 212, which, in general, allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year for the management, conservation, or maintenance of property held for the production ofincome.

Tax Preparation Fees Section 212(3) allows a deduction for costs incurred in the preparation ofa tax return.

- 7 - allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, and section 212, which, in general, allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year for the management, conservation, or maintenance of property held for the production ofincome.

- 7 - allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, and section 212, which, in general, allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year for the management, conservation, or maintenance of property held for the production ofincome.

Expenses related to residential rental property may be deducted under se:tion 212 . . Sec . 1. 212-1 (g) , Income Tax Regs . However, a taxpayer who claims deductions under section 212 must substantiate them. Sec. 6001; sec. 1.6001-1(a) , Income Tax Regs. A taxpayer who fails to substantiate deductions claimed under section 212 is no: ent

Section 212 Respondent contends that petitioner= did not hold the Kansas City house for production of income in 2006 and 2007, suggesting that petitioner held the property instead for personal reasons related to the presence of family and friends in the area and the desire to eventually retire there. In contrast, petitjoner insists that after reloc

tion, collection, or refund of any tax" as an itemized deduction. Secs. 211 and 212. Appraisal fees and other ordinary and necessary expenses to determine a taxpayer' s tax liability as the result of a charitable contribution may be deductible under section 212 (3) . See Neelv v. Commissioner, 85 T.C. 934, 950-951 (1985) ;, Robson v. Commissioner, T.C. Memo. 1997-176, affd. without published opinion 172 F.3d 876 (9th Cir. 1999); Biaqiotti v. Commissioner, T.C. Memo. 1986-460. Expenses incurred t

Section 212 permits a deduction for all ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income and for the management, conservation, or maintenance of property held.for the production of income. Therefore, petitioner is entitled to deduct the amount of the mortgage- interest paid that rel

rms or fees relating to the activity. Thus, he was not, pursuant to section 162, carrying on a trade or business. While Mr. Van Wickler does not meet the requirements of section 162, we must determine whether his investment meets the requirements of section 212. Section.212 does not have a trade or business requirement and allows an individual to deduct ordinary and necessary expenses incurred #in activities entered into for the production of income. See sec. 212; Snyder v. United States, 674 F.

(1st Cir. 1972); sec. 1.262-1(b) (7), Income Tax Regs. However, divorce- related legal fees that are allocable to tax advice or collection of taxable alimony or incurred in a dispute regarding entitlement to business profits may be deductible under section 212. Wild v. Commissioner, 42 T.C. 706, 711 (1964) (legal fees incurred to produce monthly alimony payments, which were includable in the taxpayer's gross income, were deductible under section 212); see also Hahn v. Commissioner, T.C. Memo. 1

212 (1) , (3 ) . Section 1. 262-1 (b) (7) , Income Tax Regs . , provides that the part of an attorney's fee and the part of the other costs paid in connection with a divorce * * *, which are properly attributable to the production or collection of amounts ,includible in gross income under section 71 are deductible by the * * * [person who rece

Tax Return Preparation Fees Section 212(3) permits a deduction for expenses paid "in connection with the determination, collection, or refund of any tax ." Thus, payments by taxpayers for preparation of their - 28 - returns are deductible .

sted of amounts spent on supplies, books, journals, computer software, online services, classes, seminars, travel, and meals . Respondent determined in the notice of deficiency that the $200 and $28 expenses deducted for 2002 were deductible under section 212 . Respondent also determined that petitioner was not entitled to deduct any of the remaining expenses claimed on his 2002 and 2003 Schedules C . As to all of the expenses, the notice states that petitioner had not established that they were

The issue for decision as framed by the parties is: whether petitioner may deduct expenses in connection with her horse boarding and training activities for the years at issue pursuant to section 212 or instead is required by section 195(a) to capitalize them as startup expenditures.

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

These fees are deductible under section 212(3) as they are “in connection with the determination, collection, or refund of any tax”, but they are only deductible as a miscellaneous itemized deduction to the extent the aggregate of such deductions exceeds 2 percent of adjusted gross income pursuant to section 67.

183(c) provides that an activity is not engaged in for profit if the activity is “other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” - 21 - Port of Mystery’s deductions for expenses attributable to the activity, as provided in section 183(b).

Respondent, however, treated the New Jersey house as property held for the production of income and, pursuant to section 212,11 allowed petitioner deductions on Schedule E for claimed expenses relating to the rental of the New Jersey house before its sale.

Rental Expenses Section 212 provides a deduction for all ordinary and necessary expenses paid or incurred with respect to management, conservation, and maintenance of property held for production of income, including real property.

1997. Furthermore, from the correspondence in the record it would appear that the amount of fees deducted ($500) was reasonable for the services performed. We find, therefore, that petitioners are entitled to a deduction of $500 for legal fees under section 212(3). Reviewed and adopted as the report of the Small Tax Case Division. Decision will be entered for respondent for the taxable year 1997 at docket No. 8191-00S, and decision will be entered under Rule 155 for the taxable year 1998 at dock

1997. Furthermore, from the correspondence in the record it would appear that the amount of fees deducted ($500) was reasonable for the services performed. We find, therefore, that petitioners are entitled to a deduction of $500 for legal fees under section 212(3). Reviewed and adopted as the report of the Small Tax Case Division. Decision will be entered for respondent for the taxable year 1997 at docket No. 8191-00S, and decision will be entered under Rule 155 for the taxable year 1998 at dock

wable under section 162 or section 212(1) or (2).2 Sec. 183(c). If an activity of a taxpayer is not for profit, section 183(b) allows the taxpayer to deduct (1) expenses which otherwise would have been allowable without regard to profit motive, and 2Sec. 212 applies only to individuals and is therefore inapplicable to SFIS. - 11 - (2) certain additional expenses to the extent of the gross income derived from the activity, less those deductions of the first type. A taxpayer must have an actual an

3 Schedule C expenses are substantiated, 25 percent of such “Schedule C expenses” are allocable to the portion of the 5401-9 S. Broadway building used by petitioner for rental purposes and may be deducted as Schedule E expenses by petitioners under sec. 212, subject to the passive loss limitation of sec. 469. - 29 - the expenses in question must be capitalized under section 263A in the notices of deficiency and that we should reject respondent’s belated attempt to raise section 263A under these

ually conducted by a separate Brazilian legal entity, and any deductions petitioner receives are still subject to a 2-percent floor because, following Villa del Mar's closing in 1990, petitioner, at best, only engaged in an investment activity under sec. 212. This separate legal entity issue is a new issue which respondent is attempting to raise for the first time on brief. Similarly, the sec. 212 issue is also a new issue and was not raised either in the notice of deficiency or in respondent's

- 5 - Under section 212(1), taxpayers are “allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year * * * for the production or collection of income”.

- 2 - After concessions, the issues for decision are: (1) Whether, pursuant to section 162(a), petitioners are entitled to deductions in the amounts claimed for unreimbursed employment expenses; (2) whether, pursuant to section 212, petitioners are entitled to deductions in the amounts claimed for investment expenses; (3) whether, pursuant to section 170, petitioners are entitled to deductions in the amounts claimed for charitable contributions; (4) whether, pursuant to section 212, petitioners

(2) Is petitioner entitled to deduct under section 212 certain claimed expenses with respect to a rental property that he owned?

- 3 - After concessions by both sides,2 the issue for decision is whether under section 212 petitioner may deduct payments she made as ordered by a California court.

Such deductible expenses include expenses incurred in connection with the preparation of tax returns. See sec. 1.212-1(l), Income Tax Regs. Where a taxpayer establishes that he has incurred certain kinds of expenses but is unable to substantiate the precise amount of the expenses, we may estimate the amount of the deductible expenses.

he record about office expenses. In short, respondent disallowed these expenses for, inter alia, lack of substantiation. Nevertheless, at trial petitioner failed to substantiate his expenses. Therefore, petitioners may not deduct such expenses under section 212. We hold for respondent on these issues. - 6 - To the extent that we have not addressed any of petitioners' arguments, we have considered them and find them to be without merit. Decision will be entered under Rule 155.

Such deductible expenses include expenses incurred in connection with the preparation of tax returns. See sec. 1.212-1(1), Income Tax Regs. Where a taxpayer establishes that he has incurred certain kinds of expenses but is unable to substantiate the precise amount of the expenses, we may estimate the amount of the deductible expenses.

Section 212 allows an individual to deduct all ordinary and necessary expenses paid or incurred in (1) producing income, (2) managing, conserving, or maintaining property held for the production of income, or (3) determining, collecting, or refunding a tax. Litigation expenses may be deductible under either section 162 or section 212. See Guill v.

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

All Rule references are to the (continued...) - 2 - Accuracy-Related Year Deficiency Penalty 1994 $8,619 $934 1995 10,939 2,188 The issues remaining for decision are: (1) Are petitioners entitled for each of the years at issue to deduct under section 212 certain expenditures that they made during each of those years with respect to certain real property that they owned?

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. -· 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary busines expense but represented a voluntary expenditure by Kanter on behalf of a t ird party, which Kanter was under no legal obligation (

for Profit Defined.--For purposes of this section, the term "activity not engaged in for profit" means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212. Sec. 162 provides, in pertinent part, as follows: SEC. 162. TRADE OR BUSINESS EXPENSES. (a) In General.--There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying o

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

that the $104,231 was an ordinary and necessary expense of his investment financing business and was properly deductible by him. Alternatively, he contended that, even if the activity was not a trade or business, a deduction should be allowed under section 212. - 438 - Respondent, on the other hand, argued that the $104,231 was not an ordinary or necessary business expense but represented a voluntary expenditure by Kanter on behalf of a third party, which Kanter was under no legal obligation to

Young is entitled, pursuant to section 212(1), to a deduction for legal and collection expenses attributable to the collection of taxable income.

Section 212 governs the deductibility of litigation costs as an itemized deduction when the costs are incurred as a nonbusiness profit-seeking expense. Section 212 allows an individual to deduct all of the ordinary and necessary expenses paid or incurred in: (1) Producing income, (2) managing, conserving, or maintaining property held for the produc

Under section 212(2), a deduction is allowable for expenses that are ordinary and necessary "for the management, conservation, or maintenance of property held for the production of income." The regulations promulgated under section 212 provide that the term "ordinary and necessary" means that the expenses must be reasonable in amount and bear a reasonable and proximate relation to the management, conservation, or maintenance of property held for such purposes.

A taxpayer who is not engaged in a trade or business may deduct, pursuant to section 212, ordinary and necessary expenses paid or incurred in producing or collecting income.

Section 212 permits deductions for all ordinary and necessary expenses paid or incurred for the production of income, or for the management, conservation, or maintenance of property held for the production of income. Generally, attorney's fees and other costs paid in connection with a divorce, separation, or decree for support are personal expenses

Legal Expenses in 1992 and 1993 Section 212 allows an individual to deduct all of the ordinary and necessary expenses paid or incurred in connection with (1) the production of income, (2) the management, - 10 - conservation, or maintenance of property held for the production of income, or (3) the determination, collection, or refund of any tax.

- 22 - After concessions, the issues for decision are whether petitioners' expenditures for legal services, which respondent agrees are deductible pursuant to section 212, are subject to section 67(a), and alternatively whether such expenditures are capital expenditures.

or business expenses under section 162(a) because such activity was not engaged in for profit, but that such expenditures may be deducted to the extent allowed by 3 Our finding on this point likewise precludes claiming the disputed deductions under section 212(1). - 8 - section 183(b). Where there is no profit objective, section 183(b)(1) allows only deductions which are allowable independent of profit objective, and section 183(b)(2) allows other deductions only to the extent that they do not

Respondent contends that the legal fees are deductible under section 212(1) as an expense for the production of income and treated as a miscellaneous itemized deduction under section 67.

Respondent contends that the legal fees are deductible under section 212(1) as an expense for the production of income and treated as a miscellaneous itemized deduction under section 67.

Whether petitioners may, pursuant to section 212, deduct attorney's fees and costs relating to their respective settlements.

In addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income).

expenses claimed relate to the research and writing which petitioner engaged in pursuant to the fellowship. Since we have held that the fellowship income constitutes noncompensatory income, petitioner's fellowship expenses are deductible pursuant to section 212. 2. Rental of Petitioners' Connecticut House We now address respondent's determination with respect to the items of income and expense attributable to the rental use of petitioners' house. Respondent, employing the limitations set forth i

l inquiry requiring a weighing of the evidence in the record. Petitioners contend that they entered into and carried on the tree farm activity with the requisite profit objective and that, as a result, the deductions are allowed under section 162 or section 212. Section 183(a) provides generally that, if an activity is not engaged in for profit, no deduction attributable to such activity shall be allowed except as provided in section 183. Section 183(c) defines an “activity not engaged in for pr

the parties, the issues for decision are: - 2 - (1) Whether petitioner's expenditures related to residential real property were paid or incurred in carrying on a trade or business pursuant to section 162 or for the production of income pursuant to section 212. We hold that most of these expenditures are not deductible under either section. (2) Whether petitioner is liable for a penalty pursuant to section 6662(a) for negligence or disregard of rules or regulations. We hold that petitioner is li

Schedule E Rental Losses Section 212 provides a deduction for all ordinary and necessary expenses paid or incurred during the taxable year with respect to the management, conservation, or maintenance of property held for the production of income.

tion per semester, for two semesters, to the University in 1992, to register as a graduate student. Petitioner seeks to deduct his total $1,016 tuition payment as a "condition of employment as a graduate associate" pursuant to either section 161 or section 212. The Arizona Board of Regents Policies provides at page 25: B. Graduate research assistants and associates are full-time graduate students, selected for excellence in - 12 - scholarship and promise as researchers, who do part- time researc

Section 212 allows, in the case of individual taxpayers, a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income. Respondent does not argue that legal fees to collect unemployment compensation are not deductible if paid. See United States. v. - 22 - Gilmore, supra;

Section 212 provides, in pertinent part, that expenses for the production of income (i.e., legal expenses) are deductible as ordinary and necessary business expenses, if the expenses are-- paid or incurred during the taxable year-- (1) for the production or collection of income; (2) for the management, conservation, or maintenance of property held

Whether petitioner may deduct those payments as an expense under section 212 or a portion of these payments as a casualty loss under section 165.

Petitioner argues, in the alternative, that the employee business expenses are deductible pursuant to section 212 as expenses incurred in his capacity as an investor.

Section 212 allows deductions for all ordinary and necessary expenses paid or incurred during the taxable year-- (1) for the production or collection of income; (2) for the management, conservation, or maintenance of property held for the production of income * * * - 12 - We must decide whether any of the claimed legal expenses which petitioners d

Seranado Street house was an income-producing activity pursuant to section 212 and that petitioner did not show that he incurred the expenses claimed in connection with the house.

Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” “The determination whether an activity is engaged in for profit is to be made by reference to objective standards, taking into account all of the facts and circumstances of each case.” Estate of Power v.

However, taxpayers may not deduct “start-up” expenses under section 162(a) or 212. I.R.C. § 195; Toth v. Commissioner, 128 T.C. 1, 4 (2007). Taxpayers bear the burden of proving that the expenses were connected with an operational business and were substantiated. Rule 142(a); see Welch v. Helvering, 290 U.S. at 115. Petitioners assert

See §§ 212(1), 262(a); Rule 142(a); United States v. Gilmore, 372 U.S. 39, 46–49 (1963). Accordingly, respondent’s disallowance of the deduction is sustained. Contentions we have not addressed are irrelevant, moot, or meritless. To reflect the foregoing, Decision will be entered under Rule 155.

A taxpayer may deduct under section 212 properly substantiated repair expenses for properties held out for rent.

Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Unless otherwise stipulated by the parties, an appeal in this case would lie in the U.S.

And the text of section 212 limits the claimant of that deduction to “an individual,” which plainly excludes a limited 66 [*66] liability company such as JL Minerals.

Under section 212, ordinary and necessary expenses paid or incurred for the managing or maintaining of property held to produce income shall be deductible. Where a taxpayer uses a dwelling as a personal residence during the taxable year, however, deductions under section 212 are not allowed. §§ 262(a), 280A(a), (d); Hunter v. Commissioner, T.C. Memo. 201

Section 212 now allows a deduction for expenses incurred in income-producing activities that do not rise to the level of a trade or business, but Congress did not enact the predecessor of that section until 1942, in response to the Court’s opinion in Higgins. 22 that full-time market activity in managing and preserving one’s own estate is not embr

An activity not engaged in for profit is “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” § 183(c).

Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable 9 [*9] for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” For expenses to be fully deductible under section 162 or 212, taxpayers must show that they are engaged in the activity with the primary objective of making a profit.

Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” For expenses to be fully deductible under section 162 or 212, taxpayers must show that they are engaged in the activity with the primary objective of making a profit.

provision stated: “Most regulations set forth interpretations to resolve ambiguities or fill gaps in the tax statutes. . . . In rare instances, regulations contain guidance that is technically legislative, rather than interpretative.” IRM (30)(15)20 § 212 (Aug. 1, 1994). And the IRM continued on to state: “[The APA’s] requirements do not apply if the rules are interpretative . . . . If you think that there are unusual circumstances so that your regulations would not be interpretative, consult wi

If an expense is ordinary and necessary and relates to a taxpayer’s personal tax liability, a deduction under section 212(3) is allowable.

STEAM Works Operated as a Hobby Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Deductions are allowable under section 162 or under section 212(1) or (2) if a taxpayer shows that he is engaged in the activity with the primary objective of making a profit.

Section 162(a) “allow[s] as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” Section 212(1) and (2) similarly allows an individual a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of 18 [*18] income or the management, conservation, and maintenance of property held for the production of income.

Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” An appeal in this case would lie in the U.S.

Section 404(a)(5) provides that, in a case of a nonqualified plan, a deduction for deferred compensation paid or accrued is allowable for the taxable year for which an amount attributable to the contribution is includible in the gross income of the employees participating in the plan.

Tax Preparation Fees Section 212(3) allows a deduction for costs incurred in the preparation of a tax return.

Clemons argues that he is entitled to deduct under section 212 the amounts he paid UBS as fees for maintaining his investment account.

Petitioner has not argued that this deduction falls under section 212 as an expense incurred in the management, conservation, or maintenance of property held for the production of income (nor could he reasonably make such arguments), so we limit our analysis here to section 162.

Until that time, expenses related to that activity are not “ordinary and necessary” expenses currently deductible under section 162 (or under section 212) but, rather, are classified as “start-up” or “pre-opening” expenses subject to section 195.

305, 313 (2004), and section 212(1), which, in general, allows a 3Petitioners do not claim and the record does not otherwise demonstrate that the provisions of sec.

or collection of income,” and “for the management, conservation, or maintenance of property held for the production of income.” Even if there is no trade or business, a deduction for expenses relating to investment activities may be allowable under section 212. See, e.g., Thomason v. Commissioner, T.C. Memo. 1997-480, 1997 WL 653894, at *6. But section 183(a) bars taxpayers from claiming deductions for activities that are “not engaged in for profit,” except as provided under section 183(b). The

Additionally, section 212 generally allows the deduction of ordinary and necessary expenses paid or incurred during the tax year for the production of income.

Property Held for the Production of Income In the case of an individual section 212 allows as a deduction ordinary and necessary expenses paid or incurred “for the production or collection of income” or “for the management, conservation, or maintenance of property held for the pro- duction of income.” Sec.

Such deductible expenses include expenses incurred in connection with the preparation of tax returns. See sec. 1.212-1(l), Income Tax Regs. The taxpayer bears the burden of proving that he or she incurred the costs and maintaining appropriate records to substantiate them. See sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Petitioners cl

Indeed, petitioners make no argument that under either section 162 (Trade or Business Expenses), section 212 (Expenses for Production of Income), or any other section of the Internal Revenue Code are they entitled to any deduction with respect to the Silvertip Dr.

Such deductible expenses include expenses incurred in connection with the preparation of tax returns. See sec. 1.212-1(l), Income Tax Regs. The taxpayer bears the burden of proving that he or she incurred the costs and maintaining appropriate records to substantiate them. See sec. 6001; sec. 1.6001-1(a), Income Tax Regs. Petitioners cl

The term “activity not engaged in for profit” is defined by section 183(c) as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” An activity overcomes the limitation set forth in section 183 if it “was entered into with the dominant hope and intent of realizing a profit.” Brannen v.

- 5 - Discussion The issue for decision is whether, as petitioner contends, his expenses in 2012 and 2013 to prepare for producing and selling maple syrup and blueberries are deductible under section 162 as expenses ofa trade or business (or section 212 as expenses ofan income-producing activity), or, as respondent contends, nondeductible startup expenses under section 195.

"Until that time, expenses related to that activity are not 'ordinary and necessary' expenses currently deductible under section 162 (nor are they deductible under section 212) but rather are 'start-up' or 'pre-opening' expenses." Woody v.

uct $61,500 for payments to attorneys and an investigator in connection with the termination assessment litiga- tion during 2015-2016. Such expenses might be deductible as paid "in connection with the determination, collection, or refund ofany tax." Sec. 212(3); see Com- 6The same result would follow ifwe adopted petitioner's view that he was engaged in a legitimate oil brokering business. In that event the $400,000 refund- ed to one ofhis customers during the same year would be an offset to gro

"Until that time, expenses related to that activity are not 'ordinary and necessary' expenses currently deductible under section 162 (nor are they deductible under section 212) but rather are 'start-up' or 'pre-opening' expenses." Woody v.

In addition, section 212(2) allows a deduction for ordinary and necessary expenses paid or incurred for the management, conservation, or maintenance ofproperty held for the production ofincome.

"Until that time, expenses related to that activity are not 'ordinary and necessary' expenses currently deductible under section 162 (nor are they deductible under section 212) but rather are 'start-up' or 'pre-opening' expenses." Woody v.

tion or collection ofincome," and "for the management, conservation, or maintenance ofproperty held for the production ofincome." Even ifthere is no trade or business, a deduction for expenses relating to investment activities may be allowable under section 212. See, e.g., Thomason v. Commissioner, T.C. Memo. 1997-480, 1997 WL 653894, - 14 - [*14] at *6. But section 183(a) bars taxpayers from claiming deductions for activities that are "not engaged in for profit," except as provided under sectio

tion or collection ofincome," and "for the management, conservation, or maintenance ofproperty held for the production ofincome." Even ifthere is no trade or business, a deduction for expenses relating to investment activities may be allowable under section 212. See, e.g., Thomason v. Commissioner, T.C. Memo. 1997-480, 1997 WL 653894, - 14 - [*14] at *6. But section 183(a) bars taxpayers from claiming deductions for activities that are "not engaged in for profit," except as provided under sectio

- 10 - [*10] one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." The expectation ofprofit need not have been reasonable; however, the taxpayermust have entered into the activity, or continued it, with the actual and honest objective ofmaking a profit.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." To determine whether and to what extent section 183 and the regulations thereunder apply, the activities ofthe taxpayer must be ascertained.

activity. According to respondent, petitioner's gambling activity was not carried on with the requisite profit motive so as to constitute a trade or business within the meaning ofsection 162 or an activity conducted for profit within the meaning ofsection 212. Under the circumstances we expect that petitioner's position on the point has been prompted, at least in part, in attempt to reduce the 2014 deficiency determined in the notice. Whether it was or was not, for the following reasons we reje

Ray's funds management losses and hold that those expenses are deductible under section 212, respondent urges the Court to take full account of petitioner's failure to establish what portion ofhis legal expenses was deductible under section 212.

Section 162(a) allows deductions for "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business", and section 212(1) and (2) allow deductions for "ordinary and necessary expenses paid or incurred during the taxable year * * * for the production or collection ofincome" or "the management, conservation, or maintenance ofproperty for the production of income".

Generally, no deduction is allowed for any personal, living, or family expenses. Sec. 262(a). While a taxpayerhas the burden to substantiate expenses underlying all claimed deductions, heightened substantiation requirements apply for expenses relating to certain deductions such as those for travel, meals, and entertainment. Sec. 274(d). I

To qualify as a deduction under section 212, (ordinary and necessary expenses incurred for the conservation or maintenance ofproperty) must satisfy the same requirements that apply to a trade or business expense under Section 162 except that the person claiming the deduction need not be in the trade or business.

research into or investigation of business potential." Heinbockel, at *42; see also Dean v. Commissioner, 56 T.C. 895, 902-03 (1971) (cost oftraveling to view and potentially purchase equipment for future business not deductible under section 162 or section 212). The cost of driving around looking for newspapers or radio stations to buy, for example, isn't deductible. Frank v. Commissioner, 20 T.C. 511, 513 (1953). An activity doesn't have to be generating revenue yet to be actively and regularl

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are allowed under section 162 for the ordinary and necessary expenses ofcarrying on an activity which constitutes the taxpayer's trade or business.

Generally, no deduction is allowed for any personal, living, or family expenses. Sec. 262(a). While a taxpayerhas the burden to substantiate expenses underlying all claimed deductions, heightened substantiation requirements apply for expenses relating to certain deductions such as those for travel, meals, and entertainment. Sec. 274(d). I

Generally, no deduction is allowed for any personal, living, or family expenses. Sec. 262(a). While a taxpayerhas the burden to substantiate expenses underlying all claimed deductions, heightened substantiation requirements apply for expenses relating to certain deductions such as those for travel, meals, and entertainment. Sec. 274(d). I

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." The Court ofAppeals for the Fifth Circuit, to which appeal in these cases would generally lie, has held that for a deduction to be allowed under section 162 or 212(1) or (2), a taxpayer must establish that he engaged in the activity with the primary purpose and intent - 19

Further, the expenses associated with Britney Jean Yacht reported on Schedule C1 - Sunrise Beach Services have been disallowed because you have not established that these amounts were incurred or, ifincurred, paid by you during the taxable year for IRC section 212 expenses, or that these expenses were deductible under the provisions ofthe Internal Revenue Code.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Petitioner wife testified that she did not have a profit motive for her teaching activity.

fecting the estate, such as estate tax disputes and beneficiary litigation; and the distribution ofthe residue in accordance with a decedent's will or, ifnone, with applicable State intestacy laws. See generally 34 C.J.S. Executors & Administrators, sec. 212 (Westlaw 2018). In an estate that includes the value of section 2036 assets, an executor must find a way to pay the tax liabilities created by the section 2036 assets while dealing with the reality created by section 2036: ¹°(...continued) e

Section 212 allows a taxpayerto deduct expenses incurred in the production ofincome generally, but again only ifhe actually intends to make a profit. See Bolaris v. Commissioner, 776 F.2d 1428, 1432 (9th Cir. 1985), aff'g in part, rev'g in part 81 T.C. 840 (1983); Allen v. Commissioner, 72 T.C. 28, 33 (1979); see also sec. 183(a), (c). A taxpayer's

- 7 - under section 212, in which the taxpayer does not materially participate.

Section 212 allows a taxpayerto deduct expenses incurred in the production ofincome generally, but again only ifhe actually intends to make a profit. See Bolaris v. Commissioner, 776 F.2d 1428, 1432 (9th Cir. 1985), aff'g in part, rev'g in part 81 T.C. 840 (1983); Allen v. Commissioner, 72 T.C. 28, 33 (1979); see also sec. 183(a), (c). A taxpayer's

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." For expenses to be deductible under section 162, Trade or Business Expenses, or section 212, Expenses for Production ofIncome, and not subject to the limitations ofsection 183, taxpayers must show that they engaged in the activity with the primary objective ofmaking a profit

entries on her returns. Petitioner's latest claim, in her posttrial brief, is that the legal expenses are deductible as "paid or incurred for the production ofincome or the management, conservation, or maintenance ofincome-producing property" under section 212. She asserts: Petitioner had to invest the legal fees to conserve Oasis as she knew it. Otherwise her investment and that ofher son, which together - 10 - [*10] constituted 100% ofthe money which bought the Wildhorse Ranch, renovated it,

corporate income tax return.7 Petitioners claim that $64,180 ofthese fees is deductible under section 162(a) as ordinary and necessary business expenses of JGx5.8 Respondent contends that these fees are not deductible under section 162(a) but concedes, as determined in the notice ofdeficiency, that they are properly deductible by petitioners under section 212, as nonbusiness income- producing expenses.

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." The Court ofAppeals for the Fifth Circuit, to which appeal in these cases would generally lie, has held that for a deduction to be allowed under section 162 or 212(1) or (2), a taxpayer must establish that he engaged in the activity with the primary purpose and intent - 19

212, we need not and do not address respondent's assertion that the mileage and travel expenses are also nondeductible, personal expenses. -16- petitioners are not entitled to deduct any ofthese expenses, the Salem house remodeling activity should not have been reported on a Schedule C. As a final matter, petitioners contend that they should

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." For expenses to be deductible under section 162, Trade or Business Expenses, or section 212, Expenses for Production ofIncome, and not subject to the limitations ofsection 183, taxpayers must show that they engaged in the activity with the primary objective ofmaking a profit

Petitioner is entitled to a deduction for tax preparation expenses under section 212(3), but the expense is not an unreimbursed employee business expense.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are allowable under section 162 or under section 212(1) or (2) ifthe taxpayer is engaged in the activity with the "actual and honest objective ofmaking a profit." Dreicer v.

Where the taxpayer is an individual, however, section 469 generally disallows any passive activity loss for the taxable year and treats it - 17 - [*17] as a deduction allocable to the same activity for the next taxable year. Sec. 469(a) and (b). A "passive activity loss" is defined as the excess ofthe aggregate losses from all passive ac

Section - 6 - [*6] 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." "An activity is engaged in for profit ifthe taxpayerhas an actual, honest profit objective, even ifit is unreasonable or unrealistic." Keating v.

Any deductions to which petitioner would otherwise be entitled under either section 162 or section 212 will be disallowed ifhe used the Indiana property as a residence during the tax years in issue within the meaning ofsection 280A(d)(1).

tion 183(c) provides: "For purposes ofthis section, the term 'activity not engaged in for profit' means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Section 162 applies to trade or business expenses, while section 212(1) and (2) allows a deduction, respectively, for expenses incurred "for the production or collection ofincome" and for the management, conservation, or maintenance ofi

Whether an activity is engaged in for profit for purposes ofsection 162 and section 212 is 4The SLS activity was Calvin Moyer's, not Urve Moyer's.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are allowed under section 162 for the ordinary and necessary expenses ofcarrying on an activity which constitutes the taxpayer's trade or business.

Taxable Interest Section 212 allows taxpayers to deduct ordinary and necessary business expenses paid or incurred during the taxable year for the production ofincome.

Section 183(b)(1) provides that deductions that would be allowable without regard to whether such activity is engaged in for profit are to be allowed.

Section 183(b)(1) provides that deductions that would be allowable without regard to whether such activity is engaged in for profit are to be allowed.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are allowed under section 162 for the ordinary and necessary expenses ofcarrying on an activity which constitutes the taxpayer's trade or business.

"Until that time, expenses related to that activity are not 'ordinary and necessary' expenses currently deductible under section 162 (nor are they deductible under section 212) but rather are 'start-up' or 'pre-opening' expenses." Woody v.

to the extent ofthe gross income from the activity. The phrase "activity not engaged in for profit" means any activity other than one with respect to which deductions are allowed for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212. Sec. 183(c). Generally, deductions are allowable for ordinary and necessary expenses incurred in conducting a trade or business or for the production ofincome. Secs. 162(a), 212(1). To be entitled to business expense deductions without l

1.212-1(d), Income Tax Regs. In short, petitioners' expenses were not ordinary and necessary and thus were not deductible pursuant to section 162 or 212. Finally, petitioners failed to satisfy the section 274(d) substantiation requirements relating to Mr. Rangen's vehicle expenses. See Boyd v. Commissioner, 122 T.C. 305, 320 (2004

. Jafarpour v. Commissioner, T.C. Memo. 2012-165 (citing Stanton v. Commissioner, 399 F.2d 326, 329-330 (5th Cir. 1968), afg T.C. Memo. 1967- 5 We note that Niemann did not argue that these fees were deductible as an expense ofproducing income under section 212. - 11 - [*11] 137). Sporadic activities don't qualify. Groetzinger, 480 U.S. at 35; Jackson v. Commissioner, 86 T.C. 492, 514 (1986), afCd, 864 F.2d 1521 (10th Cir. 1989). It's clear from the record before us that Niemann's business was c

Investment Property Section 212 allows a deduction for all the ordinary and necessary expenses paid or incurred for the production or collection ofincome and for the management, conservation, or maintenance ofproperty held for the production of income.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are not allowable for an activity that taxpayers carry on primarily for sport, as a hobby, or for recreation in - 16 - [*16] excess ofthe taxpayer's income from the activity.

Section 183(c) provides: "For purposes ofthis section, the term 'activity not engaged in for profit' means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Section 1.183-2(b), Income Tax Regs., sets forth a nonexclusive list ofnine factors to be considered when ascertaining a taxpayer's profit intent.

We explained: Generally stated, the question presented by this case is whether petitioner may offset her taxable income by the expenses she incurred in obtaining payment for her blood plasma "donations." The ability to offset income with expenses incurred either under section 162, in carrying on a trade or business, or under section 212, for the production ofincome, requires by definition the existence ofrelated income.

yee mileage expenses Mr. Tarighi incurred as an employee. Generally, a taxpayer's costs ofcommuting from home to his or her place ofbusiness or employment are personal expenses that may not be deducted. Sec. 1.262-1(b)(5), Income Tax Regs.; see also sec. 212(a); sec. 1.212-1(f), Income Tax Regs. However, a taxpayermay be able to deduct expenses incurred in commuting between one or more business locations. Dehr v. Commissioner, T.C. Memo. 1998-441; Friend v. Commissioner, T.C. Memo. 1990-144, aff

n deductions for personal expenses. See sec. 183(c) (defining an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212"). Thus, an individual taxpayermay deduct "ordinary and necessary expenses paid or incurred during the taxable year * * * for the production or collection of income", sec. 212(1), "for the management, conservation, or maintenance of prope

The taxpayers had conceded the fee was not deductible under section 162 or section 212, and we rejected the authority they proposed, section 61(a)(12), which "manifestly d[id] not provide for any kind ofdeduction." Id.

Section 183(c) provides: "For purposes ofthis section, the term 'activity not engaged in for profit' means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Section 1.183-2(b), Income Tax Regs., sets forth a nonexclusive list ofnine factors to be considered when ascertaining a taxpayer's profit intent.

Such deductible expenses include expenses incurred in connection with the preparation oftax returns. See sec. 1.212-1(1), Income Tax Regs. Petitioner did not provide adequate evidence to substantiate the amount ofsuch expenses. Without such evidence, we cannot employ the Cohan doctrine to estimate petitioner's tax preparation fees, see

engaged in for profit". The term "activity not engaged in for profit" is defined by section 183(c) as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212". The U.S. Court ofAppeals for the Ninth Circuit, to which this case is appealable absent written stipulation to the contrary, see sec. 7482(b)(1)(A), has held that an activity is engaged in for profit ifthe taxpayer's "predominant, primar

Consequently, the Redisches are not entitled to deductions under section 212 or a loss deduction under section 165 relating to the Porto Mar property.

n deductions for personal expenses. See sec. 183(c) (defining an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212"). Thus, an individual taxpayermay deduct "ordinary and necessary expenses paid or incurred during the taxable year * * * for the production or collection of income", sec. 212(1), "for the management, conservation, or maintenance of prope

A passive activity is any activity that involves the conduct ofa trade or business or the expenses ofwhich are deductible under section 212, in which the taxpayer does not materially participate.

ec. 267(a)(2) (flush language); sec. 1.267(a)-1(b)(1), Income Tax Regs. ("No deduction shall be allowed a taxpayer for trade or business expenses otherwise deductible under section 162, for expenses for production ofincome otherwise deductible under section 212 [.]"). There is no dispute that Twin City and TMS&P are related parties under section 267(b)(2). However, because we held that Twin City cannot deduct the lump-sum rent prepayment under section 162 and should instead capitalize it ¹5Petit

s allowed except as provided for in section 183(b). The phrase "activity not engaged in for profit" means any activity other than one with respect to which deductions are allowed for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212. Sec. 183(c). "Profit" for purposes ofsection 183(a) means economic profit, independent oftax savings. See Antonides v. 9Generally, the Court's concerns surrounding new theories are surprise or prejudice to either party. Both parties were

ec. 267(a)(2) (flush language); sec. 1.267(a)-1(b)(1), Income Tax Regs. ("No deduction shall be allowed a taxpayer for trade or business expenses otherwise deductible under section 162, for expenses for production ofincome otherwise deductible under section 212 [.]"). There is no dispute that Twin City and TMS&P are related parties under section 267(b)(2). However, because we held that Twin City cannot deduct the lump-sum rent prepayment under section 162 and should instead capitalize it ¹5Petit

Section 183(c) provides: "For purposes ofthis section, the term 'activity not engaged in for profit' means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Section 1.183-2(b), Income Tax Regs., sets forth a nonexclusive list ofnine factors to be considered when ascertaining a taxpayer's profit intent.

An exception to the rule that a rental activity is per se passive is found in section 469(c)(7), which provides that the rental activities ofcertain taxpayers in - 8 - real property trades or businesses (sometimes referredto as real estate professionals) are not per se passive activities under section 469(c)(2) but are treated as a trade or business subject to the material participation requirements of section 4

Instead, an investor's expenses are deductible under section 212 as incurred in the production ofincome.

"'[E]xcept for the requirement ofbeing incurred in connection with a trade or business,' * * * a deduction under section 212 'is subject * * * to all the restrictions and limitations that apply in the case ofthe deduction under * * * [sectioh 162(a)] ofan expense paid or incurred in carrying on any trade or business.'" Estate ofDavis v.

Section 183(b)(1) provides that deductions that would be allowable without regard to whether such activity is engaged in for profit are to 9Mr.

- 20 - [*20] Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are allowable under section 162 or under section 212(1) or (2) ifthe taxpayer is engaged in the activity with the actual and honest objective ofmaking a profit.

cessary expenses paid or incurred during the taxable year for the management, conservation, or maintenance ofpropertyheld for the production ofincome. A taxpayermay deduct properly substantiated repair expenses for properties held out for rent under section 212. A taxpayer claiming a deduction on a Federal inconte tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense to which the deduction relates has been - 8

Personal Use ofthe Lemoore Property Section 212 allows for a deduction ofordinary and necessary expenses paid or incurred while managing or maintaining property held out for the production of income.

r profit.9 We therefore fmd that the Ohanas were not engaged in the trade or business ofreal-estate development from 2007 to 2009.'° 9 We likewise reject the Ohanas' alternative argumentthat their expenses are deductible as investment expenses under section 212. Section 469(c)(6), however, authorized regulations that to include such expenses within the definition of"trade or business" in applying the passive-activity loss rules. Section 1.469-4(b)(1)(ii), Inc. Tax Regs., was the response, and it

the travel expenses related to it are not deductible as business expenses. See sec. 162(a)(2). Further, petitioners have not demonstrated that the timeshare is property held for investment and that expenses related to its upkeep are deductible under sec. 212. - 18 - Respondent contends that petitioners are liable for the penalty because of negligence and/or disregard ofrules or regulations or, alternatively, because their underpayment is due to a substantial understatement ofincome tax. See sec.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxableyear -15- under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are allowable under section 162 or under section 212(1) or (2) ifthe taxpayer is engaged in the activity with the actual and honest objective ofmaking a profit.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxableyear -15- under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are allowable under section 162 or under section 212(1) or (2) ifthe taxpayer is engaged in the activity with the actual and honest objective ofmaking a profit.

cessary expenses paid or incurred during the taxable year for the management, conservation, or maintenance ofpropertyheld for the production ofincome. A taxpayermay deduct properly substantiated repair expenses for properties held out for rent under section 212. A taxpayer claiming a deduction on a Federal inconte tax return must demonstrate that the deduction is allowable pursuant to a statutory provision and must further substantiate that the expense to which the deduction relates has been - 8

mary or usual within the particular trade, business, or industry or ifit relates to a transaction "ofcommon or frequent occurrence in the type ofbusiness involved." Deputy v. du Pont, 308 U.S. 488, 495 (1940). An expense is necessary 36Additionally, sec. 212 generally allows a taxpayerto deduct the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection ofincome. Such expenses must be reasonable in amount and bear a proximate relationship to the

- 43 - [*43] Section 183(c) defines "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are allowed under section 162 for expenses ofcarrying on activities that constitute a trade or business.

- 12 - Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are allowable under section 162 or under section 212(1) or (2) ifthe taxpayer is engaged in the activity with the "actual and honest objective ofmaking a profit".

decision are: (1) whetherpetitioners are entitled to deduct $6,535 for continuing dental education (CDE) expenses under section 162 for 2009; (2) whether petitioners are entitled to deduct an additional $2,652 for rental real estate expenses under section 212 for 2009; (3) whetherpetitioners failed to report $102,000 ofcancellation ofindebtedness (COD) income for 2010; and (4) whetherpetitioners are liable for accuracy-relatedpenalties under section 6662(a) for 2009 and 2010.

sue, respondent failed to allow deductions for ordinary and necessary expenses paid or incurred during the taxable year for the production or collection ofincome. See sec. 212(1). The expenses ofan investor that otherwise satisfy the requirements ofsec. 212 are deductible under that section as itemized deductions that are subject to the 2% floor imposed by sec. 67(a). Sec. 163(d) also limits the deductibility ofinvestment interest. See Endicott v. Commissioner, T.C. Memo. 2013-199. Respondent st

r profit.9 We therefore fmd that the Ohanas were not engaged in the trade or business ofreal-estate development from 2007 to 2009.'° 9 We likewise reject the Ohanas' alternative argumentthat their expenses are deductible as investment expenses under section 212. Section 469(c)(6), however, authorized regulations that to include such expenses within the definition of"trade or business" in applying the passive-activity loss rules. Section 1.469-4(b)(1)(ii), Inc. Tax Regs., was the response, and it

Section 162(a) provides that "[t]here shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business".

Mortgage Interest Section 212 allows a deduction for all ordinary and necessary expenses paid or incurred during the taxable year for the management, conservation, or maintenance ofproperty held for the production ofincome.

Section 212 generally allows a deduction for expenses paid or incurred in connection with an activity engaged in for the production or collection ofincome or for the management, conservation, or maintenance ofproperty held for the production of income. Under both provisions, however, expenses must be associatedwith a trade or business or other inco

Mortgage Interest Section 212 allows a deduction for all ordinary and necessary expenses paid or incurred during the taxable year for the management, conservation, or maintenance ofproperty held for the production ofincome.

Section 183(c) provides: "For purposes ofthis section, the term 'activity not engaged in forprofit' means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Section 1.183-2(b), Income Tax Regs., sets forth a nonexclusive list ofnine factors to be considered when ascertaining a taxpayer's profit intent.

’s attorneys, but she did not know who at TLC was directing TLC’s attorneys. We infer from the record and find that TLC’s attorneys drafted licensing agreements and patent infringement agreements largely at the direction of Mr. Cooper. Additionally, sec. 212 generally allows a taxpayer to deduct the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income. Such expenses must be reasonable in amount and bear a proximate relationship to th

In order for a deduction to be allowed under section 162 or section 212(1) or (2), the taxpayermust establish that he "engaged in the activity with 'the predominant, primary or principal objective' ofrealizing an economic profit independent oftax savings." Giles v.

An activity is "not , engaged in for profit" ifit is an activity other than one with respect to which deductions are allowable for the taxable year under section 162 ör section 212(1) or (2).

The profit standards applicable for section 212 are the same as those used for section 162.

Section 183(c) defmes an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." For expenses to be fully deductible under section 162 or 212, taxpayers must show that they engaged in the activity with the primary objective ofmaking a profit.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212."3 Section 162 allows a deduction for all the ordinary and necessary expenses paid or incurred in carrying on an activity which constitutes a trade or business ofthe taxpayer.

investment expenses, financial advice, seminars/workshop [sic]". A deduction is allowed for ordinary and necessary expenses paid by a taxpayer during the year for the production or collection ofincome, subject to the 2% floor ofsection 67(a), under section 212. Section 212 allows a taxpayerto deduct ordinary and necessary expenses paid or incurred for the production or collection ofincome or for the management, conservation, or maintenance ofproperty held for the production ofincome. Petitioner

feree. - 20 - [*20] B. Amortizable Section 197 Intangibles An amortizable section 197 intangible is any section 197 intangible acquired after August 10, 1993, and held in connection with the conduct ofa trade or business or an activity described in section 212. Sec. 1.197-2(d)(1), Income Tax Regs. Section 197 intangibles include, inter alia, goodwill. Sec. 197(d)(1)(A). On January 3, 2005, FishNet Security acquired section 197 intangibles, i.e., goodwill, from Fish Holdings in a section 351 tran

- 44 - [*44] profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." An activity constitutes a "trade or business" within the meaning of section 162--and it escapes the limitation ofsection 183--ifthe taxpayer's actual and honest objective is to realize a profit.

1.212-1(h), Income Tax Regs. Generally, a taxpayer must establish that the expenses are ordinary and necessary and must maintain records sufficient to substantiate the amounts ofthe deductions claimed. Sec. 6001; Meneguzzo v. -13- [*13] Commissioner, 43 T.C. 824, 831-832 (1965); sec. 1.6001-1(a), (e), Income Tax Regs. Petitioners

Section 212 allows deductions for individuals for all the ordinary and necessary expenses paid or incurred during the taxable year for the production ofincome or the management or maintenance ofproperty held for the production ofincome. - 5 - Passive Activity Losses Ifataxpayer is an individual, however, the "passive activity loss" for the taxable

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." For expenses to be fully deductible under section 162 or 212, taxpayers must show that they engaged in the activity with the primary objective - 6 - ofmaking a profit.

Section 212(2) similarly allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year for the management, conservation, or - 11 - [*11] maintenance ofproperty, including real propertyheld for the production of income. See Grant v. Commissioner, 84 T.C. 809, 825 (1985), aff'd without published opinion, 800 F.2d 26

from the purchase and sale ofstocks and call options. 3A trader's expenses are deducted in determining adjusted gross income. See Kav v. Commissioner, T.C. Memo. 2011-159, 2011 Tax Ct. Memo LEXIS 156, at *6. An investor's expenses are deducted under sec. 212 as itemized deductions, and, as pertinent to petitioners, the deduction ofinvestment interest is limited by sec. 163(d). See Arberg v. Commissioner, T.C. Memo. 2007-244, 2007 Tax Ct. Memo LEXIS 253, at *33. - 3 - [*3] increased by $5,351 and

In general, section 212 allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year for the management, -14- conservation, or maintenance ofproperty held for the production ofincome.

Section 183(a) generally disallows any deduction attributable to an activity "not engaged in for profit."6 Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The existence ofa profit motive is a question offact that we decide on the basis ofall facts and circumstances.

Section 212 - 5 - generally allows a deduction for expenses paid or incurred in connection with an activity engaged in for the production or collection ofincome or for the management, conservation, or maintenance ofpropertyheld for the production of income. Such expenses, however, must be associated with a trade or business or other income-produci

An exception to the rule that a rental activity is per se passive is found in section 469(c)(7), which provides that the rental activities ofa taxpayer in real - 5 - [*5] property trades or businesses are not per se passive activities under section 469(c)(2) but are treated as a trade or business subject to the material participation i!

A passive activity is any activity that involves the conduct ofa trade or business or the expenses ofwhich are deductible under section 212, in which the taxpayer does not materially participate.

which the taxpayer does not materially participate. Sec. 469(c)(1). For the purposes ofsection 469 and to the extent provided in regulations, a trade or business includes any activity withrespectto which expenses are allowable as a deduction under section 212. Sec. - 5 - 469(c)(6)(B). .Rental activity is gen:rally treated as a per se passive activity regardless ofv/hetherthe taxpayermaterially participates. Sec. 469(c)(2), (4). Material participation is definedas involvement in the operations o

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." The Court ofAppeals for the Ninth Circuit, to which this case is appealable absent stipulation to the contrary, has held that an activity is engaged in for profit ifthe taxpayer's "predominant, primary or principal objective" in engaging in the activity was to realize an e

(d)(1). Passive activities include any trade or business in which the taxpayer does not materially participate, sec. 469(c)(1), or, to the extent provided in regulations, any activity with respect to which expenses are allowable as a deduction under section 212, sec. 469(c)(6)(B). Rental activity is generally treated as per se passive regardless ofwhetherthe taxpayermaterially participates. Sec. 469(c)(2), (4). There is, however, an exception for passive activity losses up to $25,000 under secti

Thus, no deductions are allowed (continued...) - 13 - [*13] defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable yearunder section 162 or under paragraph (1) or (2) ofsection 212." An activity constitutes a "trade or business" within the meaning ofsection 162--and it escapes the limitation of section 183--ifthe taxpayer's actual and honest objective is to make a profit.

(a qualified business use does not include use for which a deduction is allowable under section 212; i.e., for the production or collection of income or for the management, conservation, or maintenance of property held for the production ofincome).

Section 212 - 5 - generally allows a deduction for expenses paid or incurred in connection with an activity engaged in for the production or collection ofincome or for the management, conservation, or maintenance ofpropertyheld for the production of income. Such expenses, however, must be associated with a trade or business or other income-produci

n 183(c) provides that "For purposes ofthis section, the term 'activity not engaged in for profit' means any activity otherthan one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are allowable under section 162 for expenses ofcarrying on activities that constitute a trade or "Most ofthese arguments are not addressed in this opinion because we decide the case in respondent's favor on the basis ofsec.

Section 183(a) generally disallows any deduction attributable to an activity "not engaged in for profit."6 Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The existence ofa profit motive is a question offact that we decide on the basis ofall facts and circumstances.

- 44 - [*44] profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." An activity constitutes a "trade or business" within the meaning of section 162--and it escapes the limitation ofsection 183--ifthe taxpayer's actual and honest objective is to realize a profit.

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." In the Court ofAppeals for the Ninth Circuit, the court to which an appeal ofthis case most likely lies, an activity is engaged in for profit ifthe taxpayer's "predominant, primary or principal objective" in engaging in the activity was to profit.

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." In the Court ofAppeals for the Ninth Circuit, the court to which an appeal ofthis case most likely lies, an activity is engaged in for profit ifthe taxpayer's "predominant, primary or principal objective" in engaging in the activity was to profit.

2007-309; see also sec.

cates that the predominant 5Certainly petitionerwas a real estate investor, but that is not necessarily the same as being in a real estate trade or business. Generally, investors may deduct their ordinary and necessary investment expenses pursuantto sec. 212(1) and (2) as miscellaneous itemized deductions subjectto the 2% floor prescribed by sec. 67(a). Given our factual findings and the lack ofadequate substantiation, we need not determine whetherpetitionerwas in the real estate business or mer

"Until that time, expenses related to * * * [the] activity are not 'ordinary and necessary' expenses currently deductible under section 162 (nor are they deductible under section 212) but rather are 'start-up' or 'pre-opening' expenses." Woody v.

Section 183 "Hobby Loss" Respondent contends that the losses related to petiti ner's activity are not deductible because the activity was not engaged in for profit within the meaning of section 183.

Hughes and Nutter, and the amount thereof was not set until after the 2001 transaction), (4) $6,000 in section 212 expenses of HCAC, (5) $6,607 in section 212 Although HCAC reported a basis of $825,162 on its return, the underlying expenditures that the parties stipulated HCAC claimed on its return actually totaled $825,163.

The E Street Property Section 212 allows as a deduction all the ordinary and necessary expenses paid during the year for the production or collection ofincome, sec.

Sec. 469(d)(1). A passive activity is any trade or business in which the taxpayer does not materiallyparticipate, sec. 469(c)(1), or to the extentprovided in regulations, any activity with respect to which expenses are allowable as a deduction under section 212, sec. 469(c)(6)(B). - 19 - Rental activity is generallytreated as a per se passive activity regardless of whether the taxpayermateriallyparticipates. Sec. 469(c)(2), (4). There are two principal exceptions to the general rule that rental

Section 183(c) def'mes an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." In order for a deductionto be allowed under section 162 or section 212(1) or (2), the taxpayermust establish that he "engaged in the activity with 'the predominant, primary or principal objective' ofrealizing an economic profit independent oftax savings." Giles v.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." Deductions are allowable under section 162 or under section 212(1) or (2) ifthe taxpayer is engaged in the activity with the actual and honest objective ofmaking a profit.

Therefore, respondent's determination to disallow all öfpetitioners' Schedule C expenses for 2006 and 2007 is sustained.7 Petitioners' Schedule E Expenses Section 212 allows or the deduction ofall ordinary and necessary expenses paid or incurred during th taxable year for the management, conservation, or maintenance ofproperty h Id for the production ofincome.

Section 183(c) def'mes an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) ofsection 212." In order for a deductionto be allowed under section 162 or section 212(1) or (2), the taxpayermust establish that he "engaged in the activity with 'the predominant, primary or principal objective' ofrealizing an economic profit independent oftax savings." Giles v.

at issue: Section 183(c) defines an "activity ·not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of ·section 212." Deductions are allowable under sections 162 and 212.for activities in which the taxpayer engaged with the predominant purpose and intention of making a profit.

In addition, section 212 allows a deduction for all the ordinary and necessary expenses paid or incurred for the production or collection ofincome and for the management, conservation, or maintenance ofproperty held for the production ofincome.

The E Street Property Section 212 allows as a deduction all the ordinary and necessary expenses paid during the year for the production or collection ofincome, sec.

Section 183(c) d nes an activity not engaged in for profit as "any activity otherthan one with res ; tö which deductions are allowable for the taxable year - 11 - under section 162 or under paragraph (1) or (2) ofsection 212." For expenses to be deductible under section 162, Trade or Business Expenses, or section 212, Expenses for.Production ofIncome, and not subject to the limitations ofsection 183, taxpayers must show that they engaged in the activitywith the primary objective ofmaking a profi

Additionally, section 212 generally allows the deduction ofordinary and necessary expenses paid or incurred during the tax year for the production or collection ofincome.

Petitioner timely filed his 2008 Federal income tax return, but he failed to report thereon any ofthe $6,753 COI income he realized upon the above debt discharges by the credit card companies.2 On audit respondent increased petitioner's taxable income by the $6,753 COI, and respondent did not allow petitioner either an offset or a section 212 miscellaneous itemized deduction for the $2,343 he paid to the debt resolution company.

s he must have records sufficient to verify his claims, see sec. 6001; sec. 1.6001-1(a), Income Tax Regs. That turns out to be quite important here, because Brooks argues that the interest that Dain forgave in his case would've been deductible under section 212. This section allows individuals to deduct all the ordinary and necessary expenses paid or incurred for the production of income. .(Note that he doesn't argue that the interest would've been deductible under section 162 as a trade or busi

d to the capital, not current-expense, part ofthe ledger.5 E at 577-79. We synthesizedthese holdings in Boagni v. Commissioner, 59 T.C. 708 (1973). In Boagni, the taxpayer challenged the Commissioner's disallowance ofa deduction for legal fees under section 212. Boagni argued that the fees were deductible because they were incurred in cases involving royalty interests. We reiterated that the origiñ-of-the-claim standard requires an examination ofall the facts and circumstances such as "the issue

However, any such deductible expense must be substantiated by adequate records. Sec. 60Ól. Certain expenses can be deducted onlÝ if the taxpayer can substantiate (1) the amount of the expense, (2) the time and place the* expense was incurr'ed, añd (3) the business purpose of the^expense. Sec. 274 (d); s'ec. 1.274-5A(b) (2), Income Tax Reg

6 Stat. at 819, provides that a self-employed individual is considered to be her own employer and her own employee and contributions made by a self- employed taxpayerto her pension plan "shall be considered to satisfy the conditions ofsection 162 or section 212".6 S. Rept. No. 87-992, supra, 1962-3 C.B. at 341-342; see sec. 404(a)(8). Further, 1962 Act sec. 7, 76 Stat. at 828, amended section 62 to provide that self-employed individuals were entitled to the deduction from gross income allowed by

For a taxpayer's expenses to be deductible under section 162, Trade or Business Expenses, or section 212, Expenses for Production ofIncome, and not subject to the limitations ofsection 183, a taxpayer must show that he or she engaged in the activitý with the objective ofmaking a profit.

Passive activities include any trade or business in which the taxpayer does not materially participate, sec. 469(c)(1), or, - 7 - to the extent provided in regulations, any activity.with respect to which expenses are allowable as a deduction under section 212, sec. 469(c)(6)(B). Rental activity is generally treated as per se passive regardless ofwhether the taxpayer materially participates. Sec. 469(c)(2), (4). There are, however, two exceptions: (1) for real estate professionals under section 4

ctivity's gross incomes Sec. 183(b). Section 183(c) defines an activity not engaged in for profit as "anyladtivity other than one,with respect to which deductions are allowable for the taxable year under section 162 or under paragraph- (1) or (2):of section 212." Sec. 183(d) provides for a statutory reversal of the burden of proof if yetitioners meet certain criteria. Petitioners do not meet those criteria. - 8 - Section 162 allows as a deduction all the ordinary and necessary expenses paid or i

Schedule E Expenses Section 212 allows for the deduction of all ordinary and necessary expenses paid or incurred during ther taxable year for the management, conservation, or,maintenance of property held for the production of income .

defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." To be engaged in a ·trade or business, the taxpayer must conduct the activity with continuity, regularity, and for the primary purpose of realiz.ing income or profit.

Nevertheless, under.section 212 individuals are allowed to deduct ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income or for the management, conservation, or maintenance of property held for the production income.

Section 212 allows deductions for all the ordinary and necessary expenses paid·or incurred during the taxable year for the production of income or the .management or maintenance of property held for the production of income. Only expenses paid or incurred are deductible as' . . expenses-under sections 162 and 212. Respondent cited several cases for

ities.' But petitioners 7Respondent allowed these losses to the extent of net passive income, including from sales of business property, as reported on Schedule E. 8After trial respondent amended his answer to assert, alternatively, that pursuant to sec. 212(2) petitioners' claimed deductions are limited as relating to investment properties and that pursuant to sec. 280A petitioners' personal use of the Washington Harbour condominiums and Batts Neck Plantation precludes the deduction of any expe

from nonconventional sources for 2004 and 2005, respectively; (2) whether petitioners can deduct payments of $4,691 and $5,061 made in 2005 and 2006, respectively, as expenses of a trade or business under section 162 or as investment expenses under section 212; and (3) whether petitioners can deduct as theft losses under section 165 for 2004 or 2005 the payments made to Gas Recovery Partners 2GP in 2005 and 2006.

Additionally, section 212 generally allows he -deduction of ordinary and necessary expens s paid or inburred during the tax year for the production or collection of income.

Additionally, section 212 generally allows the deduction of ordinary and necessary expenses paid or incurred during the tax year for the production or collection of income.

he gross income derived from such activity for the taxable year". "[T]he term 'activity not engaged in for profit' means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under * * * section 212." Sec. 183(c). Though section 183 is limited on its face to "an individual or an S corporation", we have previously and repeatedly agreed with the Commissioner that "section 183 of the Code applies to the activities of a partnership, and

U.S. 488, 495 (1940). In contrast, "personal, living, or family expenses" are generally nondeductible. Sec. 262(a). In certain circumstances, the taxpayer must meet specific substantiation requirements to be allowed a deduction under section 162 or section 212. See, e.g., sec. 2 4 (d). The heightened substantiation requirements of section 274 (d) apply to: (1) Any traveling expense, including meals and lodging away from home; (2) any item with respect to an activity in the nature of entertainmen

defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." To be engaged in a ·trade or business, the taxpayer must conduct the activity with continuity, regularity, and for the primary purpose of realiz.ing income or profit.

Profit Motive Section 183 provides that a deduction forsexpenses of an activity not conducted for profit cannot, gene(ally, exceed gross income from the activity.4 Zhang did not repor any gross income *Sec.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." An activity is engaged in for profit if the taxpayer's "predominant, primary or principal objective" in engaging in the activity was to realize an economic profit independent of tax savings.

Whether legal fees are deductible under section 212 or nondeductible under section 262(a) depends upon the origin of the claim with respect to which the fees were incurred and not upon its potential effects on the fortunes of the taxpayer.

In General Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." In general, deductions are allowable under section 162 or 212 for activities in which the taxpayer engaged with the primary purpose and dominant hope and intent of realizing a profit.

orted on Schedule C because managing a property with a short rental period is akin to running a business. The other rental real estate activities are reported on Schedule E as a separate and distinct activity and generally fall within the purview of section 212. The statute's legislative history reinforces this rationale, though not as petitioner suggests. A 1986 Senate Finance Committee report, in explaining the then-new passive activity loss rules, provided the following clarification: "A pass

Section 183(c) defines an activity not engaged in for profit as "any.activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Deductions are allowable under section 162 or under section 212(1) or (2) if the taxpayer is engaged in jhe activity with the "actual and honest objective of making a profit".

Section 212 allows deductions for all the ordinary and necessary expenses paid or incurred during the taxable year for the production of income or the management or maintenance of.property held for the production of income. If a taxpayer is an individual, however, the "passive activity loss" for the taxable year shall not be allowed. Sec. 469(a).3

197 begins on the later of-- (A) The first day of the month in which the property is acquired; or (B) In the case of property held in connection with the conduct of a trade or business or in an activity described in section 212, the first day of the month in which * * * the activity begins.

197 begins on the later of— (A) The first day of the month in which the property is acquired; or (B) In the case of property held in connection with the conduct of a trade or business or in an activity described in section 212, the first day of the month in which * * * the activity begins.

e gross income derived from such activity for the taxable year”. “[T]he term ‘activity not engaged in for profit’ means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under * * * section 212.” Sec. 183(c). Though section 183 is limited on its face to “an individual or an S corporation”, we have previously and repeatedly agreed with the Commissioner that “section 183 of the Code applies to the activities of a partnership, and t

Section 212 aside, petitioners’ argument also glosses over section 1012. Under section 1012, cost basis generally is what a taxpayer paid to acquire an asset. See Solitron Devices, Inc. v. Commissioner, 80 T.C. 1, 16-17 (1983), affd. without published opinion 744 F.2d 95 (11th Cir. 1984). Petitioners paid transaction fees to establish a conservatio

section 197 intangible" means any section 197 intangible-- (A) which is acquired by the taxpayer after the date of the enactment of this section, and (B) which is held in connection with the conduct of a trade or business or an activity described in section 212 . -16- (d) Section 197 Intangible . For purposes of this. section-- (1) In general . Except as otherwise provided in this section, the term "section 197 intangible" means-- (E) any covenant not to compete (or other arrangement to the exte

Section 212 allows a deduction for all of the.ordinary and necessary expenses paid or incurred during the taxable year in the production or collection of income. Sec. 212(1). A taxpayer - 5 - may be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear of property held for the production of income. Sec. 167(a

However, section 274(c)(2) provides an exception to section 274(c)(1) if the trip qualifies under one, of tw o exceptions: (A) The trip does not exceed 1 week, or (B) the portion of-the trip not attributable to~the taxpayer's section 212 activities constitutes less than 25 percent of the total time 19 - of the stay.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section ..162 or under paragraph (1) or (2) of section 212 .", Section-162 (a) allows a taxpayer-to deduct all-ordinary and necessary business expenses paid or incurred during the taxable year in carrying on a trade or business .

Section 212 allows deductions for expenses paid or incurred in connection with an activity engaged in_for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income . When a taxpayer establishes that he paid or incurred a deductible expense but does not establish the amo

reason .of [the first exception]" . Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 . " Section 162 allows a deduction for all ordinary and necessary expenses paid or incurred in carrying on any trade or business . Section 212 allows a deduction for all ordinary and necessary expenses paid or incurred for the production o

Lowe's fishing activity were not deductible because the fishing activity was not engaged in for profit within the meaning of section 183 .

Section 212 Expenses Section 212 allows,an individual to deduct all of the ordinary and necessary expenses paid or incurred : (1) For the production of income ; (2) for management, conservation, or maintenance of property held for the production of,income ; or } 20 - (3) in connection with the determination, collection, or refund a tax . A . Legal

gambling .loss even if the .1oss is .also described as a kind of generally deductible item, such as a section .162(a) business expense,- , section 165(a) loss from a transaction : entered into for profit, or, a section 212 expense for the production of income .

Additionally, section 212 generally allows deduction of ordinary and necessary expenses paid or incurred,during the tax year for the production 4 or collection of income .

Until that time, expenses related to the activity are not ordinary and necessary expenses deductible under section 162 or section 212 (expenses incurred-for the production of income), but instead are "start- up" or "pre-opening" expenses .

estate broker's license. We therefore find in Sakkis's favor for alls these deductions, but only the payment to Duane Gomer Seminars is a business expense reportable on Schedule C. The other payments are all Schedule A miscellaneous deductions under section 212. See also sec. 67(b). b. Mobile-Radio Business One of Sakkis's side businesses that didn't at first require his personal management was the direct ownership of a specialized mobile radio license in Los Angeles. In 2000, the company that m

section 197 intangible" as any section 197 intangible : (A) Which is acquired by the. taxpayer after the date of the enactment of this section , and (B ) which is held in connection with the conduct of a trade or business or an activity described in section 212 . 4 Petitioner claimed a $6,920 amortization deduction for goodwill acquired .upon the purchase of Checkrite . The Checkrite business ended in 1997 . Petitioner did not provide any documentary or testimonial evidence establishing the acqu

Section 183(c) .defines an "activity not engaged in for profit" as "any activity other than one with respect-,to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 ." 12 The Court .

activity not engaged in for profit. Section 183 (c) defines an activity not engaged in for profit as any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212. Breeding and raising horses may be an activity entered into for profit pursuant to section 162. See Engdahl v. Commissioner, 72 T . C. 659, 665 (1979) . Such a determination will depend upon whether an individual engaged in the activity w

on the Schedules C are deductible. To the contrary, respondent asserts that Mr. Sada has not established that the - expenses were incurred in a trade or business within the meaning of section 162 or for the production of income within the.meaning of section 212. Re'spondent asserts that the expenses are personal expenses, deductions for which are disallowed by section 262. A. Claimed Schedule C Expenses Taxpayers generally may deduct expenses that -are ordinary and necessary in carrying on a tra

Section 183(c) defines an "activity not engaged .in for profit" as "any activity other, than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 ." Pursuant to the jurisprudence of the Court of Appeals for the Ninth Circuit, the court to which an appeal of, this case would lie absent a stipulation to the contrary, an activity is engaged in for profit .if=the taxpayer's "predominant, primary or principal objective"

ot Engaged In for Profit Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 ." An activity constitutes a "trade or business" within the meaning of section - 19 - 162--and it escapes the limitation of section 183--if the taxpayer's actual and honest objective .

Section 183(c) defines "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 ." Deductions are allowable - 9 - under section 162 for expenses related to a taxpayer's carrying-- on a trade or business and under section 212(1) and (2) for expenses incurred for the production or collection of income or for the management, conservation, or maintenance of p

Until that time, expenses related to that activity are not "ordinary and necessary" expenses currently deductible under section 162 (nor - 10 - are they deductible under section 212) but rather are "start-up" or "pre-opening" expenses .

Section 183,(c) defines an "activity not-engaged in for profit" as "any activity other than one,with respect to which'deductions are ,~allowable(cid:127)for the taxable year under section 162 or unde r paragraph (1) or (2) of section 212 ." 10 - The Court of Appeals for the Fifth..

212 1 Petitioner is required .to have, profit .as instead of ;tax savings to take deductions however . See Aaro Science. Co :. v . Commiss ioner, 'Petitioner argues he had no bases ii securities and therefore could'not recogn sale . J -16- (5th Cir . 1991), affg . T .C . Memo . 1989-687 ; Fischer v . United States , 490 F .2d 218, 222 (7th Ci

n of the limitation imposed by section 67(a) (i .e ., 2 percent of adjusted gross income), . Mr . Blackmon is entitled to (i) a deduction of $300 under section 162 for the expense of tools, and (ii) a deduction of $181 for tax preparation fees under section 212(3) . 3 - trip) . During the year-at issue (2003),' Mr . Blackmon worked the Darlington plant between January 1 and December 21 . On about three occasions from 1996 to 2003, there were- layoffs at the Darlington plant, during which for per

71] under section 212 .

fore find that the burden of proof remains with petitioners . .III . Legal Expenses and Origin of the Claim Tes t We now turn to whether petitioners' legal expenses are deductible as ordinary and necessary expenses for the production of income under section 212 . Taxpayers may generally deduct all ordinary and necessary expenses paid for the production or collection of income, or for the management, conservation, or maintenance of property held for,-the production of income . Sec . 212(1) and (2

Until that time, expenses related to the activity are not ordinary and necessary expenses deductible under section 162 or section 212 (expenses incurred for the production of income), but instead ar e "start-up" or "pre-opening" expenses .

Tax Preparation Fees Section 212 permits a deduction for costs incurred in the preparation of a tax return .

1) the "Other expenses" .that petitioners claimed in Sched- ule C "are not attributable to an active trade or business under IRC Section 162", (2) those expenses are deductible as "expenses related to the production or collection of income under IRC Section 212 subject to the .2 percent floor for miscellaneous deductions", and (3) therefore petitioners should have reported those expenses in Schedule A--Itemized Deductions (Schedule A) instead of Schedule C .

ness and in which the taxpayer does not materially participate . Sec . 469(c)(1) . For this purpose, a "trade or business" is generally defined as any activity in connection with a trade or business or any activity for the production of income under section 212 . Sec . 469(c)(6) . A taxpayer is treated as materially participating in an activity only if the taxpayer is involved in the operations of the activity on a basis which is regular, continuous,j and substantial . Sec . 469(h)(1) . The part

y look to the administrative construction thereof where the meaning of the words used is in doubt, and the courts will ordinarily show deference to such construction and give it controlling weight. 73 C.J.S., Public Administrative Law and Procedure, sec. 212 (2004) (emphasis added); accord Oteze Fowlkes v. Adamec, 432 F.3d 90, 97 (2d Cir. 2005) (“An agency’s interpretation of its own statute and regulation must be given controlling weight unless it is plainly erroneous or inconsistent with the r

See Rule 143(a), (f) (regarding the submission of expert witness reports) ; see also Fed.

ept as provided in section 183(b) . Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 . " A taxpayer who is carrying on a trade or business may deduct ordinary and necessary expenses incurred in connection with the operation of the business . Sec . 162(a) . The U .S . Court of Appeals for the Eleventh Circuit, to which an

44(d)(7)-denies a .deduction for the same expenditur - 16 '- Petitioners claim that they are entitled to deduct th e II Schedule C expenses under sections 162 and 212 .' Section 212 is similar to section 162 in that it allows as a deduction "all the ordinary and nebessary expenses paid or incurred during the taxable year" in connection with, among other things, "the production or collection of income" .

Section 212(1) allows individual taxpayers to deduct ordinary and necessary expenses paid for the production or collection of income . No deductions are allowed for personal, living, or family expenses except as otherwise allowed . Sec . 262(a) . Because petitioners deducted a $25,000 passive activity loss for their rental activities, the maximum a

expenses , such savings would not benefit the petitioner, but would benefit her estate or her sisters .") . . Petitioner has not demonstrated that any portion of the fees paid to create an inter vivos trust is deductible under either section 162 or section 212 . A review of petitioner's bank records reveals that the remaining disputed Schedule E deductions for legal and professional fees relate to membership fees petitioner paid, apparently to the Rental Housing Association of Northern Alameda

374, 378-379 (1970) ; see also Murata v .

Section 212 ( 2) allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year for the management , conservation, or maintenance of property held for the production of income . No deduction is permitted for personal , living, or family expenses . Sec . 262(a) . Section 280A limits otherwise allowable deduct

. 162 and 183 . Petitioners do not object on procedural grounds to respondent's argument under sec . 183 . - 10 - other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 . " Absent a stipulation to the contrary, see sec . 7482(b)(2), this case is appealable to the Court of Appeals for the Tenth Circuit, see sec . 7482(b)(1), which has applied the dominant or primary objective standard to test whether an al

income derived from such activity . Section 183(c) defines an activity not engaged in for profit as;;"any activity other than one with respect .to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 . " Deductions are allowed under section 162 for the ordinary and necessary expenses 'of carrying on an activity which constitutes the taxpayer's trade or business .. Deductions are allowed under section 212 for expenses paid or incurred(

For a taxpayer's expenses in an activity to be deductible under section 162, entitled "Trade or Business Expenses", or section 212, entitled "Expenses for Production of Income", and not subject to the limitations of section 183, a taxpayer must show that the taxpayer engaged in the activity with an actual and honest objective of making a profit .

der section 212(2) as “expenses paid or incurred * * * for the management, conservation, or maintenance of property held for the production of income”. Property held for investment is property held for the production of income within the meaning of section 212. See Newcombe v. Commissioner, 54 T.C. 1298, 1302 (1970) (an expense deduction is justified under section 212(2) only if the property - 24 - to which it relates “is ‘held for investment,’ i.e., for the production of income”); sec. 1.212-1(

Automobile/Truck Expenses Automobile expenses if paid or incurred for business reasons or related to income-producing property are not personal and may be deductible under section 162(a) or section 212, even if not paid or incurred for travel away from home .

The profit standards applicable for section 212 are the same as those used for section 162 .

For a taxpayer's expenses in an activity to be deductible under section 162, entitled "Trade or Business Expenses", or section 212, entitled "Expenses for Production of Income", and not subject to the limitations of section 183, a taxpayer must show that the taxpayer engaged in the activity with an actual and honest objective of making a profit .

For a taxpayer's expenses in an activity to be deductible under section 162, entitled "Trade or Business Expenses", or section 212, entitled "Expenses for Production of Income", and not subject to the limitations of section 183, a taxpayer must show that the taxpayer engaged in the activity with an actual and honest objective of making a profit .

OPINION The deductibility under section 162 or section 212 o f taxpayer expenses attributable to an activity depends upon whether the activity is carried on for profit .

Section 183 defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Section 162 allows a taxpayer to deduct ordinary and necessary expenses of carrying on the taxpayer’s trade or business.

- 16 - provision is section 212, which allows an individual to deduct all of the ordinary and necessary expenses paid or incurred in : (1) Producing income, (2) managing, conserving, or maintaining property held for the production of income, or (3) determining, collecting, or refunding a tax .

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 ." In general, the Commissioner's determination set forth in the notice of deficiency is presumed correct .

Section 183(c) defines an activity "not engaged in for profit" as any activity other than one for which deductions are "allowable * * * under section 162 or under paragraph (1) or (2) of section 212 ." Essentially the test for determining whether an activity is engaged in for profit is whether the taxpayer engages in the activity with the primary objective of making a profit .

Section 183(c) defines an activity "not engaged in for profit" as any activity other than one for which deductions are "allowable * * * under section 162 or under paragraph (1) or (2) of section 212 ." Essentially the test for determining whether an activity is engaged in for profit is whether the taxpayer engages in the activity with the primary objective of making a profit .

le by reason of section 183(b)(1) . Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 . " In order for a deduction to be allowed under section 162 or section 212(1) or (2), the taxpayer must establish that he "engaged in the activity with `the predominant, primary or principal objective' of realizing an economic profit ind

The profit standards applicable for section 212 are the same as those - 10 - used for section 162.

On or about September 5, 2006, 2 weeks prior to trial, petitioner signed and submitted to respondent her 2001 individual Federal income tax return and claimed thereon a $47,600 miscellaneous legal expense deduction under section 212, subject to the 2-percent adjusted-gross-income floor of section 67(a) .

le by reason of section 183(b)(1) . Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 . " In order for a deduction to be allowed under section 162 or section 212(1) or (2), the taxpayer must establish that he "engaged in the activity with `the predominant, primary or principal objective' of realizing an economic profit ind

db) Gifts .-- (1) Limitation .--No deduction shall be al- owed under section 162 or section 212 for any xpense for gifts made directly or indirectly to any individual to the extent that such expense, hen added to prior expenses of the taxpayer for 'See a so Putnam v .

Section 212 allows a deduction for all ordinary and necessary expenses paid or incurred for the production of income . - 9 - the gift ; (3) the business purpose of the expense ; and (4) the business relationship to the taxpayer of the persons entertained or receiving the gift . The substantiation requirements of section 274(d) are designed to enco

Paragraph 4(g) of the petition assigned error to the adjustment in paragraph 7 of the explanation of items in the notice of deficiency denying petitioners a deduction under section 183 or section 212 for any legal, accounting, consulting, and advisory fees for the taxable year 2001 .

le by reason of section 183(b)(1) . Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 . " In order for a deduction to be allowed under section 162 or section 212(1) or (2), the taxpayer must establish that he "engaged in the activity with `the predominant, primary or principal objective' of realizing an economic profit ind

Expenses are deductible only under section 212 as itemized deductions, and deduction of interest is restricted by section 163(d) .

Section 183(c) defines an activity “not engaged in for profit” as any activity other than one for which deductions are “allowable * * * under section 162 or under paragraph (1) or (2) of section 212.” Essentially the test for determining whether an activity is engaged in for profit is whether the taxpayer engages in the activity with the primary objective of making a profit.

le by reason of section 183(b)(1) . Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 . " In order for a deduction to be allowed under section 162 or section 212(1) or (2), the taxpayer must establish that he "engaged in the activity with `the predominant, primary or principal objective' of realizing an economic profit ind

concedes that petitioners are entitled to deduct the following expenses as miscellaneous itemized deductions, totaling $84,581: (1) $71,657, identified by petitioners as "MLF" or "Merrill Lynch Fees", as expenses for| the production of income under section 212; and (2) $12,924 of the $26,000 identified by petitioners as "US Bank Fees", as expenses for the production of income under section 212."" However, respondent Petitioners have not objected to respondents' characterization of these expense

le by reason of section 183(b)(1) . Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 . " In order for a deduction to be allowed under section 162 or section 212(1) or (2), the taxpayer must establish that he "engaged in the activity with `the predominant, primary or principal objective' of realizing an economic profit ind

For a taxpayer's expenses in an activity to be deductible under section 162, Trade or Business Expenses, or section 212, Expenses for Production of Income, and not subject to the limitations of section 183, a taxpayer must show that the taxpayer engaged in the activity with an actual and honest objective of making a profit .

In order for a taxpayer to be entitled to a deduction under section 212, he must substantiate his deductions by maintaining sufficient books and records.

Section 183(c) defines an "activity not engaged in for profit" as any activity other than one for which deductions are allowable under section 162 or under paragraph (1) or (2) of section 212 for the taxable year .

Similarly, section 212 allows deductions for ordinary and necessary expenses incurred “for the production or collection of income.” On the other hand, “no - 6 - deduction shall be allowed for personal, living, or family expenses.” Sec.

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

Cash method taxpayers may deduct expenses when they are actually paid. Sec. 1.446-1(c)(1)(i), Income Tax Regs. Respondent contends that petitioner's legal expenses are not properly deductible for taxable year 2001 because they were not paid in that year. Petitioner contends the expenses are ¹Petitioner did not receive several Forms 109

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

Section 212 allows a deduction for all of the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income . Sec . 212(1) . The attorney' s fees paid by petitioner would be allowed as a itemized deduction under this section . The deduction would, however, be subject to the 2 -percent floor unde

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212."¹° The Court of Appeals for the Ninth Circuit, to which an appeal of this case would lie absent stipulation otherwise, has held that for a deduction to be allowed under section 162 or section 212(1) or (2), the taxpayer must establish that she .engaged in the activity with

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

ence is to "an entity that never existed." The Court doubts the reference is to an entity at all, but the Court's question to Poltash, whether the reference was a shorthand reference to "includable income", as a justification for deductibility.under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

ence is to “an entity that never existed.” The Court doubts the reference is to an entity at all, but the Court’s question to Poltash, whether the reference was a shorthand reference to “includable income”, as a justification for deductibility under sec. 212, met with a protestation of ignorance. - 58 - (an employee will not intentionally make false or misleading verbal or written statements in matters of official interest). The notices proposed to suspend both Sims and McWade for 14 calendar da

ch is allocable to one or more classes of income other than interest (whether or not any amount of income of that class or classes is received or accrued) wholly exempt from the taxes imposed by this subtitle, or any amount otherwise allowable under section 212 (relating to expenses for production of income) which is allocable to interest (whether or not any amount of such interest is received or accrued) wholly exempt from the taxes imposed by this subtitle.

Nevertheless, there is insufficient evidence in the record to establish the amount of the fees, or the proper year for any such allowable deduction. Taking into account petitioners’ 2000 filing status, their 2000 modified adjusted gross income, and the SSDI benefits petitioner received that year, we find respondent’s determination as t

28, 1988).3 Included are expenses incurred “for the production or collection of income for which a deduction is otherwise allowable under section 212(1) and (2), such as investment advisory fees, subscriptions to investment advisory publications, certain attorneys’ fees, and the cost of safe deposit boxes”.

Expenses for Green Capital and TS Capital The parties stipulated that for tax years 1995 through 1998 petitioner is entitled to additional deductions in agreed amounts under either section 162 or section 212 as the Court may determine.

in pursuing his claims against the bank “should be excluded as costs of producing the taxable income.” We interpret this as petitioner’s argument that the fees and costs are deductible as expenses paid or incurred for the production of income under sec. 212(1). Deductions are strictly a matter of legislative grace, and petitioner must show that his deductions are allowed by the Internal Revenue Code. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Petitioner must also

- 20 - allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.”14 Pursuant to the jurisprudence of the Court of Appeals for the Ninth Circuit, the court to which an appeal of this case most likely lies, an activity is engaged in for profit if the taxpayer’s “predominant, primary or principal objective” in engaging in the activity was to profit.

ged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.”5 Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Section 162 allows the taxpayer to deduct expenses of carrying on a taxpayer’s trade or business if those expenses are 5 Sec.

To be deductible under section 162 or 212, an expense must be directly connected with or proximately result from the taxpayer's business or an activity conducted for the production or collection of income. Kornhauser v. United States, 276 U.S. 145, 153 (1928); Madden v. Commissioner, 514 F.2d 1149, 1150 (9th Cir. 1975), revg. 57 T.C. 513

(B) An activity described in section 212 shall be treated as a trade or business.

Included are expenses incurred “for the production or collection of income for which a deduction is otherwise allowable under section 212(1) and (2), such as investment advisory fees, subscriptions to investment advisory publications, certain attorneys’ fees, and the cost of safe deposit boxes”.

However, a taxpayer generally may not deduct personal, living, or family expenses. Sec. 262(a). We first address petitioners’ miscellaneous itemized deduction for “house expense” of $24,000. Petitioners calculated - 6 - the amount of this expense by estimating the value of their house to be $5 per square foot. They argue that petition

L. 105-206, sec. 3001(a), 112 Stat. 726. - 5 - as otherwise provided in section 183(b).2 An "activity not engaged in for profit" means any activity other than one for which deductions are allowable under section 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). Deductions are allowed under section 162 for the ordinary and necessary expenses of carrying on an activity that constitutes the taxpayer's trade or business. Deductions are allowed under section 212 for expenses paid or incu

Section 212 permits deductions for all the ordinary and necessary expenses paid or incurred during the taxable year for the production of income. The amounts deductible pursuant to these provisions are not in dispute here. However, section 469 generally disallows passive activity losses for individual taxpayers. Sec. 469(a)(1)(A). A passive activit

nary and necessary business expenses. Petitioner contends that the law suit against the association, for which funds were expended, was intended to retrieve "taxable income" and tax losses and credits and therefore the expenses are deductible under section 212 or 216. He argues in his brief: Petitioner's litigation with the PVHA was motivated by the desire to force the PVHA to provide a complete disclosure of its finances and accounting records so that Petitioner could not only accurately determ

Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” - 4 - The standard for determining whether an expense is deductible under section 162 or 212, and not subject to the limitations of section 183, requires a taxpayer to demonstrate that the activity was carried on with the actual and honest objective of making a profit.

y into the trusts did not aid in the production of income, nor did it alter management activity. - 20 - Petitioners simply restructured the form in which they held their property. Rearranging title is not related to management or conservation under section 212. Zmuda v. Commissioner, 731 F.2d at 1422. Moreover, section 212 was not designed to allow tax deductions based on mere preservation of net worth. Id. Thus, respondent could, and did, properly disallow the expenses the trusts claimed. B. As

Section 183(c) defines an activity “not engaged in for profit” as “any activity other than one with respect to which deductions are allowable * * * under section 162 or under paragraph (1) or (2) of section 212.” Expenditures incurred in an activity are deductible under sections 162 and 212(1) or (2) if, among other things, the taxpayer establishes that she engaged in that activity with the actual and honest, objective of making an economic profit independent of tax savings, even if that objecti

y into the trusts did not aid in the production of income, nor did it alter management activity. - 20 - Petitioners simply restructured the form in which they held their property. Rearranging title is not related to management or conservation under section 212. Zmuda v. Commissioner, 731 F.2d at 1422. Moreover, section 212 was not designed to allow tax deductions based on mere preservation of net worth. Id. Thus, respondent could, and did, properly disallow the expenses the trusts claimed. B. As

An “activity not engaged in for profit” is defined in section 183(c) as “any activity other than one with respect to which deductions are allowable * * * under section 162 or under paragraph (1) or (2) of section 212.” For the expenses to be deductible under sections 162 and 212, so that the limitation of section 183 will not apply, a taxpayer must engage in or carry on an activity to which the expenses relate with an actual and honest objective of making a profit.

y into the trusts did not aid in the production of income, nor did it alter management activity. - 20 - Petitioners simply restructured the form in which they held their property. Rearranging title is not related to management or conservation under section 212. Zmuda v. Commissioner, 731 F.2d at 1422. Moreover, section 212 was not designed to allow tax deductions based on mere preservation of net worth. Id. Thus, respondent could, and did, properly disallow the expenses the trusts claimed. B. As

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." For a deduction to be allowed under section 162 or 212(1) or (2), a taxpayer must establish that he or she engaged in the activity with an actual and honest objective of making an economic profit independent of tax savings.

For Profit Defined.–-For purposes of this section, the term “activity not engaged in for profit” means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212. We note that for years 1995 and 1996 income reported on the Schedules C actually includes employee business expense reimbursements improperly characterized as income from Turtle Performance. - 11 - published opinion 702 F.2d 1205 (D.C. C

Whether a legal expense is deductible under section 162(a) or section 212, or nondeductible under section 262(a), is contingent upon the origin and character of the underlying claim, not on its potential consequences upon the fortunes of the taxpayer.

Section 183(c) defines “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” The basic standard for determining whether an expense is deductible under section 162 and 212 (and thus not subject to the limitations of section 183) is the following: a taxpayer must show that he or she engaged in or carried on the activity with an actual and honest object

Section 183(c) defines “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” The basic standard for determining whether an expense is deductible under sections 162 and 212 (and thus not subject to the limitations of section 183) is the following: a taxpayer must show that he or she engaged in or carried on the activity with an actual and honest objec

the intangible was acquired. Sec. 197(a). An “amortizable section 197 intangible” is any “section 197 intangible” acquired by a taxpayer after Aug. 10, 1993, and held in connection with the conduct of a trade or business or an activity described in sec. 212. Sec. 197(c)(1); Frontier Chevrolet Co. v. Commissioner, 116 T.C. 289, 292 (2001), affd. 329 F.3d 1131 (9th Cir. 2003). - 29 - existing indebtedness. Section 1.197-2(c)(9), Income Tax Regs., interprets this “exception” from section 197 treatm

Section 183(c) defines an activity “not engaged in for profit” as any activity other than one for which deductions are “allowable * * * under section 162 or under paragraph (1) or (2) of section 212.” Essentially the test for determining whether an - 5 - activity is engaged in for profit is whether the taxpayer engages in the activity with the primary objective of making a profit.

ty that is not engaged in for profit. Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212”. Deductions are allowable under section 162 or under section 212(1) or (2) if the taxpayer is engaged in the activity with the “actual and honest objective of making a profit”. Ronnen v. Commissioner, 90 T.C. 74, 91 (1988); Dreicer v. Co

taxpayer does not "materially participate." Sec. 469(c)(1). The term "trade or business" for this purpose means any activity in connection with any trade or business or "any activity with respect to which expenses are allowable as a deduction under section 212." Sec. 469(c)(6)(B). - 9 - Material Participation Section 469(h)(1) provides that generally an individual shall be treated as materially participating in an activity only if he or she is involved in the operations of the activity on a bas

An “activity not engaged in for profit” is defined in section 183(c) as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) or section 212.” Under section 183(d), in the case of an activity consisting in major part of the breeding, training, showing, or racing of horses, if the gross income derived from the activity exceeds the deductions for any 2 of 7 consecutive taxable years, then the activity shall

Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” The basic standard for determining whether an expense is deductible under sections 162 and 212 (and thus not subject to the limitations of section 183) is that the taxpayer must show that the taxpayer engaged in or carried on the activity with an actual and honest objecti

Alternatively, petitioner asserts, these amounts are deductible under section 212 as expenses attributable to property held for the production of income.

Application of Section 183 to Cattle Activity Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under - 22 - paragraph (1) or (2) of section 212." In general, deductions are allowable under sections 162 or 212 for activities in which the taxpayer engaged with the primary purpose and dominant hope and intent of realizing a profit.

the intangible was acquired. Sec. 197(a). An “amortizable section 197 intangible” is any “section 197 intangible” acquired by a taxpayer after Aug. 10, 1993, and held in connection with the conduct of a trade or business or an activity described in sec. 212. Sec. 197(c)(1); Frontier Chevrolet Co. v. Commissioner, 116 T.C. 289, 292 (2001), affd. 329 F.3d 1131 (9th Cir. 2003). We also point out that in Peoples Bancorporation & Subs. v. Commissioner, T.C. Memo. 1992-285, the Commissioner advocated

Investment expenses and advice concerning taxes are deductible under section 212, but only to the extent that the aggregate of miscellaneous itemized deductions exceeds 2 percent of adjusted gross income.

he termination of the employment relationship that gave rise to the lawsuit. However, this is not an issue - 31 - that is governed by the origin of the claim test, the test that concerns the general deductibility of expenses under section 162(a) or section 212. See United States v. Gilmore, 372 U.S. 39, 49 (1963); Test v. Commissioner, T.C. Memo. 2000-362; McKeague v. United States, 12 Cl. Ct. 671, 674 (1987). Deductibility under section 162(a), as we have already discussed, is the threshold req

Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” In determining whether an individual engages in an activity for profit, we consider all the facts and circumstances, Golanty v.

the activity exceeds the deductions allowed by section 183(b)(1). An “activity not engaged in for profit” means any activity other than one for which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). Section 162 allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. In the case of an individual, section 212 allows a deduction for all the

olmes v. United States, 85 F.3d 956 (2d Cir. 1996); Stark v. Commissioner, T.C. Memo. 1999-1. Petitioner initially claims that she may deduct these expenditures as business expenses under section 162 or as expenses for the production of income under section 212. Here, however, the details concerning the property in Hawaii and its disposition are too vague and contradictory to support such deductions. For example, there is evidence that, in May of 1990, petitioner’s sister in Hawaii sent petition

Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Deductions are allowable under section 162 or under section 212(1) or (2) only if the taxpayer is engaged in the activity with the “actual and honest objective of making a profit.” Ronnen v.

The phrase “held for the production of income” has the same meaning in section 212 and section 167.

An “activity not engaged in for profit” is defined in section 183(c) as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 [trade or business expenses] or under paragraph (1) or (2) of - 13 - section 212 [expenses incurred in the production of income].” See also sec.

extent that gross receipts from the activity exceed deductions allowed by section 183(b)(1). An activity not engaged in for profit is any activity other than one for which deductions are allowable under section 162 or under paragraphs (1) or (2) of section 212. Deductions are allowed under section 162 or 212 only when the facts and circumstances show that the taxpayer engaged in the activity with an actual and honest (but not necessarily reasonable) objective of making a profit. Hulter v. Commi

Petitioner presented no evidence to support the claimed deduction for tax preparation fees. We conclude that petitioner is not entitled to the claimed deduction for tax preparation fees, and respondent’s determination is sustained. Reviewed and adopted as the report of the Small Tax Case Division. To reflect the foregoing, Decision wil

This is the case even if the expenses are paid in connection with a divorce. Sec. 1.262-1(b)(7), Income Tax Regs.; United States v. Gilmore, 372 U.S. 39 (1963); Swain v. Commissioner, T.C. Memo. 1996-22, affd. without published opinion 96 F.3d 1439 (4th Cir. 1996). The legal fees which petitioner paid to her attorney were paid in

hapter other than interest paid or accrued on indebtedness incurred or continued in connection with-- “(i) the conduct of a trade or business (other than the trade or business of performing services as an employee), or “(ii) an activity described in section 212. “(B) Exception for qualified residence interest.--The term ‘consumer interest’ shall not include any qualified residence interest.[”] The Senate Finance Committee report, provides, in pertinent part, as follows (S. Rept. 99-313, at 802-8

Section 212(2) allows a deduction for the ordinary and necessary expenses related to rental property. Section 262 precludes deductions for personal living expenses. Petitioner testified at trial that during 1997 he rented the Hallwood residence for the entire year to a tenant for $300 per month. Petitioner contends that his personal use of the Hall

Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” The U.S.

183(c) provides that a taxpayer is engaged in an activity not for profit if the activity is one other than “one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Petitioner argues for the first time on brief that LFI is entitled to deduct its expenses under sec.

Section 183(c) defines an activity “not engaged in for profit” as any activity other than one for which deductions are “allowable * * * under section 162 or under paragraph (1) or (2) - 7 - of section 212.” For deductions to be allowed under section 162 or section 212(1) or (2), taxpayers must establish that they engaged in an activity with the actual and honest objective of making an economic profit independent of tax savings.

Commissioner, supra at 825-826 (rejecting taxpayer’s argument that he was entitled to expenses under section 212 where he did not claim the expenses until after his former residence was no longer being rented and was only being held for sale).

Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” The U.S.

183(c) provides that a taxpayer is engaged in an activity not for profit if the activity is one other than “one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Petitioner argues for the first time on brief that LFI is entitled to deduct its expenses under sec.

mitted by attributable to the activity excee section 183 (b) (1) . An "activ.ity not rengaged in for profit" is defined in section 183 (c) as "any activity .other than pne ·with bl for the taxable year respect to which deductions are allbwa e (2) of section 212. under section 162 or under paragraph (1) or Petit-ioners bear the burden of proving"that the requisite 1 142 (a) • Golantya,v. Commissione..I, 72 profit motive' exists. Ru e -i T. C. 411, 426 (1979) , · affd. without published topinion 6

Nordbrock’s expenses as an employee of Alpha Tax Services would be deductible, if at all, under section 212 and only to the extent that the total exceeded 2 percent of petitioners’ adjusted gross income.

Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.”5 An activity is engaged in for profit if the taxpayer entertained an actual and honest, even though unreasonable or unrealistic, profit objective in engaging in the activity.

chapter other than interest paid or accrued on indebtedness incurred or continued in connection with— “(i) the conduct of a trade or business (other than the trade or business of performing services as an employee), or “(ii) an activity described in section 212. “(B) Exception for qualified residence interest. — The term ‘consumer interest’ shall not include any qualified residence interest.[”] The Senate Finance Committee report, states, in pertinent part, as follows (S. Rept. 99-313, at 802-80

ee and the termination of the employment relationship that gave rise to the lawsuit. However, this is not an issue that is governed by the origin of the claim test, the test that concerns the general deductibility of expenses under section 162(a) or section 212. See United States v. Gilmore, 372 U.S. 39, 49 (1963); Test v. Commissioner, T.C. Memo. 2000-362; McKeague v. United States, 12 Cl. Ct. 671, 674 (1987). Deductibility under section 162(a), as we have already discussed, is the threshold re

As relevant here, section 274(d) provides that, unless the taxpayer complies with certain strict substantiation rules, no deduction is allowable for traveling expenses under section 212 or for expenses with respect to automobiles.

Legal fees may be deductible as an itemized deduction under section 212 if they are paid for the production or collection of income or for the management, conservation, or maintenance of income producing property.

To be engaged in a trade or business within the meaning of section 162, “the taxpayer must be involved in the activity with continuity and regularity” and “the taxpayer's primary purpose for engaging in the activity must be for income or profit.” Commissioner v.

on attributable to such activity shall be allowed, except as provided in section 183(b).2 An “activity not engaged in for profit” means any activity other than one for which deductions are allowable under section 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). Section 162 allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a business. Section 212 allows a deduction for all the ordinary and necessary expenses paid o

Section 183(c) defines an activity “not engaged in for - 7 - profit” as any activity other than one for which deductions are “allowable * * * under section 162 or under paragraph (1) or (2) of section 212.” Essentially, the test for determining whether an activity is engaged in for profit is whether the taxpayer engages in the activity with the primary objective of making a profit.

In addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income).

Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” This case is appealable to the Court of Appeals for the Fourth Circuit.

- 13 - Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Deductions are allowable under section 162 or under section 212(1) or (2) if the taxpayer is engaged in the activity with the “actual and honest objective of making a profit.” Ronnen v.

to the claimed Schedule F loss because it had not been established that the farming activity was engaged in as a trade or business within the meaning of section 162 or as a means of holding property for the production of income within the meaning of section 212. Respondent’s primary position under section 6015(c)(3)(C) is that petitioner had actual knowledge that Mr. Rowe was not engaged in the farming activity for profit.23 In order to prove actual 23As an alternative ground for disallowing the

Section 262 provides that no deduction is allowed for personal, living, or family expenses.

However, a taxpayer may not deduct the loss on the sale of his or her personal residence or the expenses incurred in leasing the home (other than taxes and mortgage interest), sec. 165(a); Newton v. Commissioner, 57 T.C. 245, 248 (1971); Harris v. Commissioner, T.C. Memo. 1982-410, affd. on other issues 745 F.2d 378 (6th Cir. 1984); sec.

t the total gross income derived from the activity exceeds the deductions allowed by section 183(b)(1). An “activity not engaged in for profit” is any activity for which deductions are not allowable under section 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). The profit motive required by section 183 is the same as the profit motive required by sections 162 and 212. See Antonides v. Commissioner, 893 F.2d 656, 659 (4th Cir. 1990), affg. 91 T.C. 686 (1988); sec. 1.183-2(a), Income

Alternatively, section 212 allows a deduction for all of the ordinary and necessary expenses paid or incurred during the 1 The examination commenced after July 22, 1998; accordingly, we considered the applicability of sec.

Under section 212(1), taxpayers are “allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year * * * for the production or collection of income”. The amount of the deduction is limited to expenses related to the collection of income which is required to be included in gross income for Federal income tax purpo

al injuries suffered by petitioner and his family, and that the legal fees would not be deductible because any recovery from the lawsuits would be nontaxable under section 104. - 7 - Litigation expenses may be deductible under either section 162 or section 212. Guill v. Commissioner, 112 T.C. 325, 328 (1999); Noons v. Commissioner, T.C. Memo. 2000-106. Section 162(a) allows a deduction for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or bu

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The Court's inquiry is directed to whether the taxpayer engaged in the activity with the 7 In this instance, petitioner's income determined in the notice of deficiency should be reduced by $1,956; i.e., $1,227 for the erroneous increase of income in the notice of deficiency

ning of section 183. Thus, in effect, respondent determined that the activity of each partnership was an "activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Sec. 183(c). Petitioners do not contend that the partnerships are entitled to deductions under section 212. Accordingly, we must redetermine whether EA 83-XII and EA 84-III are entitled to deductions under section 162 during the taxable

Section 183(c) defines “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Deductions are allowable under section 162 for the expenses of carrying on an activity that constitutes a trade or business of the taxpayer.

Gaffner paid to various attorneys during 1996 constitute expenses deductible for that year under section 162(a), section 212, or any other section of the Code.

265(a) General Rule.--No deduction shall be allowed for-- (1) Expenses.-–Any amount otherwise allowable as a deduction which is allocable to one or more classes of income * * * wholly exempt from the taxes imposed by this subtitle, or any amount otherwise allowable under section 212 (relating to expenses for the production of income)* * * .

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The U.S.

e shall not, rely.83 On the instant re 82Although not altogether clear, it appears that petitioner contends in the alternative to deducting the telephone expenses at issue for 1991 and 1992 under sec. 162(a) that those expenses are deductible under sec. 212. On the instant record, we find that petitioner has failed to carry his burden of showing that the respective telephone expenses that he paid during 1991 and 1992 are ordinary and necessary expenses paid during those years for the production

Although section 212 allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year for the management, conservation, or maintenance of property held for the production of income, nothing in the record establishes that the expenses disallowed by respondent were incurred.

ning of section 183. Thus, in effect, respondent determined that the activity of each partnership was an "activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Sec. 183(c). Petitioners do not contend that the partnerships are entitled to deductions under section 212. Accordingly, we must redetermine whether EA 83-XII and EA 84-III are entitled to deductions under section 162 during the taxable

A deduction under section 212, however, may be allowed for expenses incurred for the production or collection of income, such as expenses relating to the right to receive interest income.

Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under - 6 - paragraph (1) or (2) of section 212.” Deductions are allowed under section 162 for the ordinary and necessary expenses of carrying on an activity that constitutes the taxpayer’s trade or business.

Gifts.-- (1) Limitation.--No deduction shall be allowed under section 162 or section 212 for any expense for gifts made directly or indirectly to any individual to the extent that such expense, when added to prior expenses of the taxpayer for gifts made to such individual during the same taxable year, exceeds $25.

Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” This case is appealable to the Court of Appeals for the Fourth Circuit.

An “activity not engaged in for profit” is defined in section 183(c) as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Section 162 generally permits the deduction of expenses incurred in a trade or business, and paragraphs (1) and (2) of section 212 generally permit a similar deduction for expenses incurred “for the - 10 - production or collection of income” or “for the management,

§162 and/or §212, as amended; and any successor thereto.

Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” The test for determining whether an individual is carrying on a trade or business under section 183 is whether the taxpayer’s actual and honest objective in engaging in the activity is to make a profit.

Section 183(c) defines “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Deductions are allowable under section 162 for the expenses of carrying on an activity which constitutes a trade or business of the taxpayer.

ss income generated by such activity. Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212”. Accordingly, section 183 is considered in pari materia with sections 162 and 212. See sec. 1.183-2(a), Income Tax Regs. The standard for determining whether an expense is deductible under sections 162 and 212 (and thus section 183) is i

- 12 - Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” For a deduction to be allowed under section 162 or section 212(1) or (2), a taxpayer must establish that he or she engaged in an activity with an actual and honest objective of making an economic profit independent of tax savings.

Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” The test for determining whether an individual is carrying on a trade or business under section 183 is whether the taxpayer’s actual and honest objective in engaging in the activity is to make a profit.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." This case is appealable to the Ninth Circuit Court of Appeals.

Petitioner explained at trial that he claimed on his return attorney's fees and other litigation costs associated with his divorce action as miscellaneous deductions based on his "literal reading" of section 212, governing expenses for the production of income.

See Hardy v. Commissioner, 93 T.C. 684, 687-689 (1989); Goodwin v. Commissioner, 75 T.C. 424, 433 (1980), affd. without published opinion 691 F.2d 490 (3d Cir. 1982); Dean v. Commissioner, 56 T.C. 895, 902 (1971); Pólachek v. Commissioner, 22 T.C. 858, 863 (1954). Even if substantiated, deduction of such expenses.is specifically denied by

ty that is not engaged in for profit. Section 183(c) defines an activity not engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212". Deductions are allowable under section 162 or under section 212(1) or (2) if the taxpayer is engaged in the activity with the “actual and honest objective of making a profit”. Ronnen v. Commissioner, 90 T.C. 74, 91 (1988); Dreicer v. Co

Section 274(b) provides that no deduction shall be allowed under section 162 or section 212 for any expense for gifts made directly or indirectly to any individual to the extent that the expense exceeds $25.

Section 212 allows deductions for ordinary and necessary expenses incurred for the production of income or the management or maintenance of property held for the production of income. Section 469, however, limits the deductions for losses from any "passive activity". A passive activity is any activity involving the conduct of a trade or business in

Section 212 allows an individual to deduct all of the ordinary and necessary expenses paid or incurred in connection with (1) - 26 - the production of income, (2) the management, conservation, or maintenance of property held for the production of income, or (3) the determination, collection, or refund of any tax. Taxpayers must keep sufficient rec

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The standard for determining whether the expenses of an activity are deductible under either section 162 or section 212(1) or (2) is whether the taxpayer engaged in the activity with the "'actual and honest objective of making a profit'".

- 5 - Section 212(2) allows as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year for the management, conservation, or maintenance of property held for the production of income. Section 262(a) provides that no deduction shall be allowed for personal, living, or family expenses. Section 280A(a) generally provides

and (2) in 1992 of $4,675 for interest. With respect to disallowed travel and entertainment expenses reported by petitioners on Schedule C for 1991, respondent concedes that petitioners are entitled to deduct $2,002 as employee expenses and $579 as sec. 212 expenses on Schedule A for 1991. Respondent also agrees that $11,149 of the legal and professional expenses for 1992 are deductible under sec. 162 on petitioners' Schedule C - Medical. 3Petitioners concede that none of the legal fees paid pr

gross income derived from the activity exceeds the deductions allowed by section 183(b)(1). An "activity not engaged in for profit" is any activity for which deductions would not be allowed under section 162 or under - 5 - paragraph (1) or (2) of section 212. Sec. 183(c). Section 162 allows a deduction for all the ordinary and necessary expenses paid or incurred in carrying on a trade or business. Section 212 allows a deduction for all the ordinary and necessary expenses paid or incurred for th

nsulting in 1995. Respondent is sustained on this issue. Schedule C Expenses As stated above, a taxpayer must show that he engaged in an activity with the objective of making a profit in order to deduct expenses incurred under either section 162 or section 212. See Golanty v. Commissioner, 72 T.C. 411, 425 (1979), affd. without published opinion 647 F.2d 170 (9th Cir. 1981). Where an activity is not engaged in for profit, section 183(b)(1) allows deductions that are not dependent on profit objec

ion 183(b)(1). For purposes of section 183, the term "activity not engaged in for profit" means any activity other than one with respect to which deductions are allowable for the - 7 - taxable year under section 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). Section 162(a) allows as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Where an activity does not constitute a trade or business, section 21

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are - 7 - allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." For a deduction to be allowed under sections 162 or 212(1) or (2), a taxpayer must establish that he or she engaged in the activity with an actual and honest objective of making an economic profit independent of tax savings.

ly their losses are fully deductible.4 Section 183(c) defines an activity not engaged in for profit as an “activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Deductions are allowable under section 162 or section 212 with respect to activities for which the taxpayer has the requisite section 183 profit motive.

for profit except as provided under section 183(b). An activity not engaged in for profit means any activity other than one with respect to which deductions are - 6 - allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). The taxpayer must show that he engaged in the activity with the actual and honest objective of making a profit. Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.18

An “activity not engaged in for profit” is defined in section 183(c) as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 [trade or business expenses] or under paragraph (1) or (2) of section 212 [expenses incurred in the production of income].” See also sec.

penses that would be deductible only if the activity were engaged in for profit, but (continued...) - 6 - engaged in for profit" means any activity other than one for which deductions are allowable under section 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). Deductions are allowed under section 162 for the ordinary and necessary expenses of carrying on an activity that constitutes the taxpayer's trade or business. Deductions are allowed under section 212 for expenses paid or incu

- 12 - This terminology is defined in section 183(c) as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 [trade or business] or under paragraph (1) or (2) of section 212 [expenses incurred for the production of income].” Section 183(b) permits deductions that would be allowable only if the activity were engaged in for profit, but such deductions may be taken only to the extent that any gross income generated from the activity exce

than for Transnet. Finally, there is no evidence to support a finding that Transnet had actually commenced business operations when the claimed deductions were incurred. Preopening and startup expenses are not deductible under either section 162 or section 212. See Hardy v. Commissioner, 93 T.C. 684, 687 (1989). Even if we assume, arguendo, that petitioners were engaged in a trade or business with respect to Transnet in 1994, petitioners have failed to establish that they are entitled to deduct

his Schedules C (continued...) - 7 - Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Deductions are allowable under section 162 or under section 212(1) or (2) only if the taxpayer is engaged in the activity with the "actual and honest objective of making a profit." See Ronnen v.

Section 212 allows an individual to deduct all of the ordinary and necessary expenses paid or incurred in: (1) Producing income, (2) managing, conserving, or maintaining property held for the production of income, or (3) determining, collecting, or refunding a tax. Personal expenses are not deductible. See sec. 262. Whether an ordinary and necessar

on 183(c) provides: “For purposes of this section, the term ‘activity not engaged in for profit’ means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Deductions are allowable under section 162 for expenses of carrying on activities that constitute a trade or business of the taxpayer and under section 212 for expenses incurred in connection with activities engaged in for the productio

1.212-1(l), Income Tax Regs. To the extent that we have not addressed a specific item which petitioner deducted, we find that petitioner has failed to prove that it was ordinary and necessary within the meaning of section 162.9 While we recognize that petitioner vigorously advocated on behalf of his clients and that many of his ex

An activity is "not engaged in for profit" if it is an activity other than one with respect to which deductions are allowable for the taxable year under section 162 or section 212 (1) or (2) .

Section 183(c) defines an activity which is "not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Deductions under sections 162 or 212(1) or (2) require the "actual and honest objective of making a profit." Dreicer v.

Respondent contends that the legal expenses relate to Mr. Poulos' divorce proceeding and, therefore, are personal expenses that should be disallowed. See sec. 262(a). Petitioners' legal expenses are deductible if the origin of the claim arose from their profit seeking, rather than Mr. Poulos' personal, activities. See United States v.

ed in section 183(b). For purposes of section 183, the term "activity not engaged in for profit" means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). Section 162(a) provides for the deduction of all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Where an activity does not - 12 - constitute a trade or business

ch is allocable to one or more classes of income other than interest (whether or not any amount of income of that class or classes is received or accrued) wholly exempt from the taxes imposed by this subtitle, or any amount otherwise allowable under section 212 (relating to expenses for production of income) which is allocable to interest (whether or not any amount - 22 - of such interest is received or accrued) wholly exempt from the taxes imposed by this subtitle.

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The U.S.

Section 212 permits a deduction for all ordinary and necessary expenses paid or incurred during the taxable year for - 10 - the production or collection of income and for the management, conservation, or maintenance of property held for the production of income. Petitioner submitted a Form 1098 for 1992 that showed the following amounts were paid

An activity is "not engaged in for profit" if it is an activity other than one with respect to which deductions are allowable for the taxable year under section 162 or section 212(1) or (2).

the deductions allowable under section 183(b)(1). An activity is "not engaged in for profit" if it is an activity other than one with respect to which deductions are allowable for the taxable years under section 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). In determining whether an activity is engaged in for profit, the taxpayer must show that he or she engaged in the activity with an "actual and honest objective of making a profit." Dreicer v. Commissioner, 78 T.C. 642, 645 (1

Section 212 permits deductions 3(...continued) returns are attributable to the condominium unit in question in addition to property owned by petitioners in Cloudcroft, New Mexico. Since there is no allocation on the returns, or elsewhere in the record, we have included the entire amounts. - 6 - for all the ordinary and necessary expenses paid or i

pt as provided in section 183(b).4 Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." For a deduction to be allowed under section 162 or 212(1) or (2), the taxpayers must establish that they engaged in the activity with an actual and honest objective of making an economic profit independent of tax savings.

An activity is "not engaged in for profit" if it is an activity other than one with respect to which deductions are allowable for the taxable year under section 162 or section 212(1) or (2).

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." For a deduction to be allowed under sections 162 or 212(1) or (2), a taxpayer must establish that he or she engaged in the activity with an actual and honest objective of making an - 6 - economic profit independent of tax savings.

If the requirements of section 162 or section 212 are otherwise met, a taxpayer employer may deduct contributions to a welfare benefit fund in the year in which the taxpayer employer paid the contributions to the extent of the welfare benefit fund's qualified cost for that year.

be nondeductible personal expenses, rather than ordinary and necessary business expenses. we are convinced that petitioner and his partners and associates discussed business at lunch, that the meeting was a part of their working day, and that this 1 Sec. 212, which applies to nontrade or nonbusiness expenses that are costs of producing income, and sec. 217, which applies to moving expenses, are not at issue in this case. Nor were the expenses incurred while petitioner was traveling away from hom

eduction is listed on petitioner's return as "LEGAL FEES PROTECTION OF INCOME". Respondent disallowed this deduction on the ground that petitioner failed to establish either that the expenses were actually incurred or that they are deductible under section 212. In his posttrial briefs, petitioner states that he did not keep records relating to the claimed deduction, and that the attorney who rendered the legal services has since died. Petitioner argues that "Respondent never presented - 23 - any

This terminology is defined in section 183(c) as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 [trade or business] or under - 8 - paragraph (1) or (2) of section 212 [expenses incurred for the production of income]." Section 183(b) permits deductions that would be allowable only if the activity were engaged in for profit, but such deductions may be taken only to the extent that any gross income generated from the activity excee

Section 183(c) defines "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Deductions are allowable under section 162 with respect to activities for which the taxpayer has demonstrated that his "primary purpose for engaging in the activity * * * [was] for income or profit." Commissioner v.

Commissioner, 93 T.C. 684 (1989); Goodwin v. Commissioner, 75 T.C. 424, 433 (1980) affd. without published opinion 691 F.2d 490 (3d Cir. 1982); Polachek v. Commissioner, 22 T.C. 858, 863 (1954). Even if substantiated, deduction of such expenses is specifically denied by sec. 195(a). - 12 - expense the unsubstantiated portion of

had failed to report interest income of $67,0001 and had an income tax deficiency of $12,024. Respondent allowed petitioner to deduct legal fees and costs of 1 Respondent concedes that prejudgment interest was only $64,510.60. - 5 - $18,984 under section 212(1). The parties do not dispute this amount. Discussion Petitioner contends that his entire settlement is excludable under section 104(a), and that he did not receive prejudgment interest because the parties did not allocate any amount to it

If the requirements of section 162 or section 212 are otherwise met, a taxpayer employer may deduct contributions to a welfare benefit fund in the year in which the taxpayer employer paid the contributions to the extent of the welfare benefit fund's qualified cost for that year.

An activity is "not engaged in for profit" if it is an activity other than one with respect to which deductions are allowable for the taxable year under section 162 or section 212(1) or (2).

eed, they admit that Mr. Grenville-Jones retained that election in his files. - 12 - activity not engaged in for profit as an activity other than one with respect to which deductions are allowable under section 162 or under paragraphs (1) or (2) of section 212. An activity engaged in for profit is one in which the taxpayer has an actual and honest objective of making a profit, Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without opinion 702 F.2d 1205 (D.C. Cir. 1983), although that pr

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212."7 An activity is engaged in for profit if the taxpayer entertained an actual and honest, even though unreasonable or unrealistic, profit objective in engaging in the activity.

pt as provided in section 183(b).4 Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." For a deduction to be allowed under section 162 or 212(1) or (2), the taxpayers must establish that they engaged in the activity with an actual and honest objective of making an economic profit independent of tax savings.

183(c) provides: "For purposes of this section, the term 'activity not engaged in for profit' means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The question we must decide is whether petitioner's activity of operating Playa de los Vivos constituted an activity "not engaged in for profit".

1997-497 (holding that section 212 - 9 - deduction for legal fees is a miscellaneous itemized deduction subject to section 67(a)).

- 3 - expenses under section 212, relating to rental property, which was not allowed by respondent; (4) whether petitioner, for the year 1987, is entitled to apply, as partial payment of the tax shown as due and owing on her return, the amount of $2,899.89 held by respondent for her account, which was received by respondent pursuant to a levy, and whether petitioner is

* * * Section 6421(e)(2)(A) provides the definition of off-highway business use as: any use by a person in a trade or business of such person or in an activity of such person described in section 212 * * * otherwise than as a fuel in a highway vehicle-- (i) which (at the time of such use) is registered, or is required to be registered, for highway use under the laws of any State or foreign country * * *.

Section 212 allows deductions for ordinary and necessary expenses paid or incurred in the production of income. Section 183 generally limits allowable deductions to the extent of gross 7 income generated by "an activity not engaged in for profit". Sec. 183(b). An activity not engaged in for profit is one for which deductions are not allowable unde

An activity is "not engaged in for profit" if it is an activity other than one with respect to which deductions are allowable for the taxable year under section 162 or section 212(1) or (2).

This term of art is defined in section 183(c) as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 [trade or business] or under paragraph (1) or (2) of section 212 [expenses incurred for the production of income]." Section 183(b) permits deductions which would be allowable only if the activity were engaged in for profit, but such deductions may be taken only to the extent that any gross income generated from the activity exceeds de

includes establishing that any and all of the statutory requirements necessary for the allowance of the deduction claimed have been satisfied. The type of deductions claimed on petitioner's Schedule E are generally allowable under section 162(a) or section 212(1). Regardless of which section is applicable, a distinction that is unimportant here, because petitioner used the San Bruno residence as his residence during 1991, the deductions claimed on the Schedule E are subject to section 280A(a),

However, section 212 allows as a deduction all the ordinary and necessary expenses paid during the year for the production or collection of income, section 212(1), or for the management, conservation, or maintenance of property "held for the production of income", section 212(2).

Section 183(c) defines "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." - 10 - Deductions are allowed under section 162 for the ordinary and necessary expenses of carrying on an activity which constitutes the taxpayer's trade or business.

- 16 - paragraph (1) or (2) of section 212.” Section 162 allows a deduction for all ordinary and necessary expenses paid or incurred in carrying on a business.

In addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income).

ion of $48, the amount of bank fees incurred in maintaining the account either as an ordinary and necessary trade or business expense, under section 162, or as an ordinary and necessary expense incurred for the production of income, deductible under section 212. The general rule is that bank fees are deductible only if the bank account on which the fees were incurred was used for business purposes. Callander v. Commissioner, 75 T.C. 334 (1980). The only evidence that the account was used for bus

de or business activity entered into for profit, as petitioners contend, or a personal, nonbusiness, not-for-profit activity, as respondent contends; (2) whether petitioners' investment in property in Tahiti constituted a for-profit investment under section 212; (3) the deductibility under section 162 or section 212 of expenses relating to petitioners' use of a Lear jet to travel, among other places, to their Oregon timber farm property and to their property in Tahiti; and (4) to what extent exp

o an activity if the activity is not engaged in for profit. An activity not engaged in for profit is "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Sec. 183(c). Therefore, whether an activity is engaged in for profit is determined with reference to sections 162 and 212. Deductions are allowed under section 162(a) for all ordinary and necessary expenses of carrying on an activity tha

income from the activity exceeds the otherwise allowable deductions. Section 183(c) defines an "activity not engaged in for profit" as any activity other than one for which deductions are allowable under section 162 or under paragraph (1) or (2) of section 212. The test for determining whether an individual is carrying on a trade or business under section 162, or whether an 3 The computational adjustments affect the amount of petitioners' Social Security benefits that are taxable for certain ye

Section 183(c) defines "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The test for determining whether an activity is engaged in for profit is whether the individual is engaged in the activity with "the actual and honest objective of making a profit".

Section 212 allows the deduction of ordinary and necessary expenses for the production or collection of income or for the maintenance of property held for the production of income. Petitioners failed to substantiate their entitlement to deductions in an amount in excess of that already allowed by respondent. They did not produce records of Double D

183(b)(2) provides that deductions which would be (continued...) - 13 - Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The test for determining whether an individual is carrying on a trade or business under section 183 is whether the taxpayer's actual and honest objective in engaging in the activity is to make a profit.

Section 183(c) defines "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or paragraph (1) or (2) of section 212." The key requirement for deductibility under sections 162 and 212(1) and (2) is that the taxpayer be engaged in the activity with an actual and honest objective of making a profit.

Section 183(c) defines "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or paragraph (1) or (2) of section 212." The key requirement for deductibility under sections 162 and 212(1) and (2) is that the taxpayer be engaged in the activity with an actual and honest objective of making a profit.

made the payments, petitioners may deduct part of the settlement payment relating to petitioner's conduct of his duties as an officer and employee of Northeast under section 162 and relating to actions taken by him as an investor- shareholder under section 212. However, petitioners' deduction is limited by section 67, under which expenses are deductible to the extent that they exceed 2 percent of the taxpayer's adjusted gross income. 4. Allocation of Settlement Payment Between Guaranty and Other

Section 183(c) defines a section 183 activity as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Deductions under sections 162 or 212(1) or (2) require the "actual and honest objective of making a profit." Dreicer v.

n the club memberships. Accordingly, petitioners argue that they are each entitled to deduct one-half of the amount paid under section 162(a) as an ordinary and necessary business expense. They do not claim to be entitled to deduct that amount under section 212. Respondent disallowed the deductions in the notices of deficiency on the ground that "there is no business purpose for this transaction". In respondent's post-trial briefs, respondent concedes that the expenditure, to the extent substant

183(b)(2) provides that deductions which would be (continued...) - 13 - Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The test for determining whether an individual is carrying on a trade or business under section 183 is whether the taxpayer's actual and honest objective in engaging in the activity is to make a profit.

xcept as provided in section 183(b).4 Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Sec. 183(c). Section 162 allows a deduction for all ordinary and necessary expenses paid or incurred in carrying on a business. Section 212 allows a deduction for all the ordinary and necessary expenses paid or incurred for the producti

s securities transactions. Moller v. United States, supra at 813; Mayer v. Commissioner, T.C. Memo. 1994-209. Thus, a taxpayer is engaged 3 In contrast to trade or business expenses, a taxpayer's investment-related expenses that are deductible under sec. 212 are subject to a limitation under sec. 67(a) and do not reduce alternative minimum taxable income. - 8 - in carrying on a trade or business as a securities trader only where both of the following are true: (1) The taxpayer's trading activity

itable venture. I don't know if it's called a bad debt, but it's an expense." We interpret petitioner's statement as an assertion that the surrendered deposit somehow gave rise to a deduction under the general provisions of either section 162(a) or section 212. Section 212 generally permits a taxpayer to deduct ordinary and necessary expenses incurred either for the production of income or for the management, conservation, or maintenance of property held for the production of income. There is no

In addition, there shall be allowed as a deduction State and local, and foreign, taxes not described in the preceding sentence which are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212 (relating to expenses for production of income).

l inquiry requiring a weighing of the evidence in the record. Petitioners contend that they entered into and carried on the tree farm activity with the requisite profit objective and that, as a result, the deductions are allowed under section 162 or section 212. Section 183(a) provides generally that, if an activity is not engaged in for profit, no deduction attributable to such activity shall be allowed except as provided in section 183. Section 183(c) defines an “activity not engaged in for pr

(4). For purposes of section 469(c)(1), the term "trade or busi- ness" is defined in section 469(c)(6) to include any activity in connection with a trade or business or any activity with respect to which expenses are allowable as a deduction under section 212. For purposes of section 469(c)(2), the term "rental activi- ty" is defined in section 469(j)(8) as any activity where pay- ments are principally for the use of tangible property. See also sec. 1.469-1T(e)(3)(i), Temporary Income Tax Regs.

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Petitioner bears the burden of establishing that her photography activity was engaged in for profit.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." We inquire whether the taxpayer is engaged in the activity with the "actual and honest objective of making a profit".

(a) Allocation in Case of Reinsurance Agreement Involving Tax Avoidance or Evasion.--In the case of 2 or more related persons (within the meaning of section 482) who are parties to a reinsurance agreement (or where one of the parties to a reinsurance agreement is, with respect to any contract covered by the agreement, in effect an agent of another party to such agreement or a conduit between related persons), the Secretary may-- (1) allocate be

Marshall were in connection with properties petitioner held for the production or collection of income under section 212 and were not related to or made in connection with a trade or business activity within the intent and meaning of section 162(a).

1990) ("Since, even in the absence of §163(a), interest attributable to business or profit-oriented transactions would be deductable under §162 * * * or §212 * * *, the principal function of §163(a) is to permit the deduction of interest on consumer debt").

The manner in which petitioners deducted the expenses for the premiums on their 1991 return, partly on a Form 2106 and partly as a miscellaneous itemized deduction, leads us to conclude that they rely upon section 162(a), section 212(2), or both, in support of the deductions.

ions claimed on her Schedule A for the year 1989. Accordingly, we sustain respondent's determination with respect to this issue. 4Our finding with respect to petitioner's profit motive also precludes allowing the disputed Schedule C deductions under sec. 212. Petitioner's failure to substantiate such deductions precludes the allowance of any which might otherwise be permitted by sec. 183. - 11 - Addition to Tax Section 6651(a)(1) imposes an addition to tax for failure to timely file a return, un

and published several books, conducting this activity in a portion of 5 Sec. 274(c)(1) provides generally that, in the case of an individual who travels outside the United States away from home in pursuit of a trade or business or an activity under sec. 212, no deduction shall be allowed under sec. 162 or sec. 212 for that portion of the expenses of such travel otherwise allowable under such sections that, under regulations prescribed by the Secretary, is not allocable to such trade or business

ngaged in for (continued...) -9- Section 183(c) defines an activity not in engaged in for profit as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.” Deductions are allowed under section 162 for the ordinary and necessary expenses of carrying on an activity that constitutes the taxpayer’s trade or business.

A taxpayer is permitted to deduct legal fees under section 162 or section 212, provided that the fees have the necessary connection to profit-seeking activity.

- 36 - be allowed", except as otherwise provided in section 183(b).12 Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The test for determining whether an individual is carrying on a trade or business under section 183 is whether the taxpayer's actual and honest objective in engaging in the activity is to make a profit.

c) provides: For purposes of this section, the term “activity not engaged in for profit” means any activity other than one with respect to which deductions are allowable for - 12 - the taxable year under section 162 or under paragraph (1) or (2) of section 212. The question we must decide is whether Ballard Marine’s activity with regard to holding the yacht for charter (the charter activity) constituted an activity “not engaged in for profit”. B. Actual and Honest Profit Objective An activity is

ON Section 183 limits the deductions for an activity not engaged in for profit. Sec. 183(b). An activity "not engaged in for profit" is defined as any activity for which no deductions are allowable under section 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). For purposes of section 183, a - 5 - taxpayer engages in an activity for profit if he entered into the activity with the actual and honest objective of making a profit. Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd.

er's contentions and/or are unreliable. Motor Home Expenses Section 162(a) generally allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business.3 To be entitled to a deduction 3 Sec. 212 allows a deduction for all ordinary and necessary expenses paid or incurred during the taxable year for the produc- tion or collection of income or for the management, conservation, or maintenance of property held for the production of incom

it, but only to the extent the total gross income derived from the activity exceeds the deductions allowed by sec. 183(b)(1). - 7 - profit" is any activity for which deductions would not be allowed under section 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). Section 162 allows a deduction for all the ordinary and necessary expenses paid or incurred in carrying on a business. Section 212 allows a deduction for all the ordinary and necessary expenses paid or incurred for the produc

attributable to such activity shall be allowed, except as provided in section 183(b).3 An "activity not engaged in for profit" means any activity other than one for which deductions are allowable under section 162 or under paragraphs (1) or (2) of section 212. Sec. 183(c). Section 162 allows a deduction for all the ordinary and necessary expenses paid or incurred in carrying on a business. Section 212 allows a deduction for all the ordinary and necessary expenses paid or incurred for the produc

The sole issue for decision is whether petitioners are entitled to deductions under section 212 for legal fees paid during the years 1990, 1991, and 1992.

Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." The Court inquires whether the taxpayer is engaged in the activity with the "actual and honest objective of making a profit." Ronnen v.

ed deductions unless an activity is engaged in for profit. Section 183(c) defines an activity not engaged in for profit as any activity other than one with respect to which deductions are allowable under section 162 or under paragraphs (1) or (2) of section 212. An activity engaged in for profit is one in which the taxpayer has an actual and honest objective of making a profit. Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without opinion 702 F.2d 1205 (D.C. Cir. 1983). This profit exp

and published several books, conducting this activity in a portion of 5 Sec. 274(c)(1) provides generally that, in the case of an individual who travels outside the United States away from home in pursuit of a trade or business or an activity under sec. 212, no deduction shall be allowed under sec. 162 or sec. 212 for that portion of the expenses of such travel otherwise allowable under such sections that, under regulations prescribed by the Secretary, is not allocable to such trade or business

er Bay, Wisconsin, a popular resort and vacation area located 90 miles north of Milwaukee, Wisconsin. 6 Under sec. 274(d)(1), the substantiation requirements for traveling expenses are applicable to expenses under sec. 162, as well as expenses under sec. 212. - 18 - Petitioners claimed straight-line depreciation deductions on this property (the Sister Bay property) of $1,920 for each of the years 1990 and 1991. In the notices of deficiency, respondent disallowed the entire amounts claimed for th

allowed, except as provided in section 183(b). Petitioners contend that petitioner entered into and carried on the treasure hunting activity with the requisite profit objective and that, as a result, the deductions are allowed under section 162 or section 212. Section 183(a) provides generally that, if an activity is not engaged in for profit, no deduction attributable to such activity shall be allowed except as provided in section 183. Section 183(b) allows deductions in situations not applica

Section 212 allows deductions for all the ordinary and necessary expenses paid or incurred during the taxable year for the production of income or the management or maintenance of property held for the production of 4 The receipts showed that petitioners were in Ocean City, or the vicinity, between five and eight times per year. - 6 - income. Sect

Section 212 permits deductions for all the ordinary and necessary expenses paid or incurred during the taxable year for the production of income. Section 469, however, limits the deductions for losses from a "passive activity". Chapin v. Commissioner, T.C. Memo. 1996-56. In Mordkin v. Commissioner, T.C. Memo. 1996-187 (a case involving an owner of

We also find that, although a deduction for tax preparation fees is generally available to taxpayers under section 212, petitioner has failed to present any evidence to corroborate the deduction claimed for such an expense on her Schedule A.

ent that the gross income from such activity exceeds the claimed deductions. Section 183(c) defines an activity not engaged in for profit as any with respect to which deductions would not be allowed under section 162 or under paragraph (1) or (2) of section 212. Expenses incurred in carrying on a trade or business are allowable under section 162 if they are ordinary and necessary to the conduct of that trade or business. Antonides v. Commissioner, 91 T.C. 686, 693 (1988), affd. 893 F.2d 656 (4th

herwise provided in section 183(b).4 Section 183(c) defines an activity not engaged in for profit as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212." Deductions are allowed under section 162 for the ordinary and necessary expenses of carrying on an activity that constitutes the taxpayer's trade or business.

1990) (“Since, even in the absence of § 163(a), interest attributable to business or profit-oriented transactions would be deductable under §162 * * * or §212 * * *, the principal function of §163(a) is to permit the deduction of interest on consumer debt”).

ection 183(b). For purposes of section 183, the term "activity not engaged in for profit" means any activity other than one with respect to which deductions are allowable for the taxable year under section - 6 - 162 or under paragraph (1) or (2) of section 212. Sec. 183(c). Section 1.183-2(b), Income Tax Regs., provides a non-exhaustive list of 9 factors to consider in the determination of whether an activity is engaged in for profit. These factors are: (1) The manner in which the taxpayer carri

n activity is engaged in for profit. Section 183(c) defines an activity not engaged in for profit as any activity other than one with respect to which deductions are allowable for the taxable years under section 162 or under paragraphs (1) or (2) of section 212. Petitioner argues that he engaged in the horse activity with the requisite profit objective; respondent disagrees. An activity engaged in for profit is one in which the taxpayer has an actual and honest objective of making a profit. Drei

Section 183(c) defines an "activity not engaged in for profit" as "any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212".4 For a deduction to be allowed under section 162 or section 212(1) or (2), petitioners must establish that they engaged in the activity with the actual and honest objective of making an economic profit, independent of tax savings.

ses, meals, and lodging) and any other transportation expenses are not deductible unless they qualify as expenses deductible under section 162 * * * (relating to trade or business expenses), section 170 * * * (relating to charitable contributions), section 212 * * * (relating to expenses for production of income), section 213(e) * * * (relating to medical expenses), or section 217(a) * * * (relating to moving expenses).

Petitioner is due a full return of all amounts imposed upon Petitioner's compensation which was received under contract. * * * * * * * To comply with § 7701(e) therefore, the value or cost of the services (FMV) should be allowed as a deduction under § 212. * * * When Petitioner performs this deduction, he has no taxable income. How has the Respondent allowed the Petitioner this deduction? Why is this "cost" not deductible? Internal Revenue Code section 83[3] applies to ANY compensation income *

t the facility was used primarily for the furtherance of a taxpayer's trade or business, the taxpayer must show that the actual use of the facility during 1 For these same reasons, we also find that petitioners are not entitled to a deduction under sec. 212. In order for petitioners to be entitled to a deduction under sec. 212, the predominant purpose and use of the property must not be for recreation, a hobby, or some other nonprofit motive. Sec. 1.212- 1(c), Income Tax Regs. - 14 - the taxable

he gross income from that activity exceeds any deductions taken under section 183(b)(1). Section 183(c) defines an activity not engaged in for profit as any activity other than one with respect to which deductions are allowable under section 162 or section 212. Whether deductions are allowable under section 162 or section 212 depends upon whether the taxpayer engaged in that activity with the "actual and honest objective of making a profit." Ronnen v. Commissioner, 90 T.C. 74, 91 (1988); Dreicer

1.212-1(1), Income Tax Regs.; sec. 1.67- 1T(a)(1)(iii), (b), Temporary Income Tax Regs., 53 Fed. Reg. 9875 (Mar. 28, 1988). Petitioners have not provided evidence that would enable us to find or estimate any portion of the fees that is allocable to petitioner husband's business. We conclude that petitioners failed to prove that th