Memo

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T.C. Memo. 2009-93 UNITED STATES TAX COURT THOMAS J. WOODY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 30077-07. Filed April 30, 2009. P alleges that during tax year 2004 he had a real estate investment and rental business. P deducted expenses associated with this activity as business expenses under I.R.C. sec. 162. R disallowed the business expense deductions. On the basis of this disallowance, R determined a deficiency in P’s Federal income tax for 2004. P petitioned this Court for redetermination of that deficiency. Held: P was not actively engaged in a real estate investment and rental business when he incurred and paid the expenses he deducted as Schedule C business expenses in 2004. Therefore, the…show more content…
Small Business Administration, and he obtained an employer identification number from the IRS. In December 2004 Mr. Woody obtained a credit card in the name of “Thomas J. Woody Value Property Invest” and opened a checking account in the name of “Mr. Thomas J. Woody D/B/A Value Property Investments”. Despite all of the foregoing activity, Mr. Woody did not purchase any investment property until December 30, 2004, and he did not buy or sell any other property, rent out any property, or hold any property out for rent, nor did he engage in “flipping” or “wholesaling” during tax year 2004. For tax year 2004 Mr. Woody filed a Form 1040, U.S. Individual Income Tax Return, with an attached Schedule C. On that Schedule C Mr. Woody reported no gross receipts or sales but reported total expenses of $23,373, which consisted of: “Wholesaling” or “flipping” is entering into a contract for the purchase of a property and then, before the sale goes to closing, assigning to a third-party buyer (in return for a fee) the right to buy the property. 2 - 5 Car and truck expenses Supplies Meals and entertainment Workshops and training Computer and software Misc. $144 153 41 21,515 1,451 69 Respondent now concedes that Mr. Woody incurred and paid all of the expenses set forth in his Schedule C (as listed above), and the parties stipulate that they were incurred and paid before December 29, 2004.3 However, upon examination of Mr. Woody’s 2004 tax return, the IRS disallowed Mr. Woody’s

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