                       T.C. Memo. 2001-199



                     UNITED STATES TAX COURT



         JAMES P. AND MARILYN S. CASHMAN, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20507-98.               Filed August 1, 2001.



     James P. Cashman, pro se.

     Eric W. Johnson, for respondent.


                       MEMORANDUM OPINION


     PAJAK, Special Trial Judge: Respondent determined a

deficiency of $3,763 in petitioners' 1995 Federal income taxes.

Unless otherwise indicated, section references are to the

Internal Revenue Code in effect for the year in issue.

     Respondent conceded the adjustments for the increase to

taxable income of $771 for a State income tax refund and for the
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self-employment tax of $1,835 and its corresponding $918

deduction.    Respondent filed a Motion to Dismiss For Lack of

Prosecution With Respect To Petitioner Marilyn S. Cashman, which

was granted.    Pursuant to this Court's Order, we held that

Marilyn S. Cashman is liable for a deficiency in Federal income

tax for 1995 in a reduced amount.    After concessions, this Court

must decide whether James Cashman (petitioner) is entitled to

deduct $12,988 of claimed Schedule C, Profit or Loss From

Business, expenses in 1995.    If petitioner is not entitled to

deduct this amount, both petitioners will be liable for a

deficiency in Federal income tax for 1995 in the reduced amount

of $1,950.

     Some of the facts in this case have been stipulated and are

so found.    Petitioners resided in Stillwater, Minnesota, at the

time they filed their petition.

     In 1991, petitioner incorporated World Youth Foundation,

Inc., under the laws of Minnesota.      The corporation's name was

changed to I.D. Solutions, Inc., in 1992.      The corporation's name

was again changed in 1994 to I.D. Club, Inc. (I.D. Club).      In

1997, I.D. Club was involuntary dissolved by the Minnesota

Secretary of State.

     I.D. Club was a private, 24-hour emergency information relay

service where a family could register children or any other

individual.    I.D. Club would maintain information on each
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registered individual that could be used in emergency situations.

Petitioner testified that he did not consider I.D. Club to be a

corporation because it never filed corporate returns, never had

minutes or meetings, and was not in good standing with the State.

He stated:    "this business was not turned on.    It was not in

operation.    It was all being set up to be turned on, to be a

corporation at some point.    This was not an operating system in

1995."

     From the time I.D. Club and its predecessors were initially

incorporated throughout 1995, the corporation never had any gross

receipts.    However, in 1995, I.D. Club entered into various

agreements with third parties.    Petitioner would sign for the

corporation or as its president.    No documents were signed in

petitioner's name personally without the corporation listed under

his name.    Petitioner took no steps to dissolve the corporation

prior to 1997 when it was automatically dissolved by the state.

     Petitioners reported $12,988 of expenses on their 1995

Schedule C for I.D. Club.    The expenses consisted of car and

truck expenses of $6,503, legal and professional services of

$1,640, office expense of $1,320, supplies of $418, meals and

entertainment of $532, utilities of $738, and other expenses of

$1,837.   Because there was no income reported on the Schedule C,

petitioners claimed a $12,988 loss.      Respondent disallowed the

deductions for all of these expenses.
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     Respondent argues that the business was a corporation and

its losses may not be taken on petitioners' individual tax

return, that because the business was not an ongoing business,

research into a future business is not a deductible loss, and

that petitioner failed to substantiate the claimed expenses.

Because we agree with respondent as to the first contention, we

need not address respondent's other arguments.

     Usually, an individual may not claim the deductions of a

corporation.   Moline Properties v. Commissioner, 319 U.S. 436

(1943).   Payments made by a shareholder to his corporation or a

third person for the benefit of the corporation are neither

deductible business expenses of the shareholder nor expenses

incurred for the production of income.   Markwardt v.

Commissioner, 64 T.C. 989, 995 (1975).   Such payments are treated

as contributions to capital by the shareholder and must be

regarded as an additional cost of the stock.     Id.     A deduction

is allowable only if the expenditures are made to protect or

promote the shareholder's own trade or business.       Id.   The trade

or business of the corporation must be considered separately from

the trade or business of the shareholder.   Id.    The corporate

form may be disregarded where it is a sham or unreal.        Moline

Properties v. Commissioner, supra at 439.

     In this case, petitioner did not operate any trade or

business on his own.   The only business he was involved with was
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I.D. Club.   Petitioner argues that the corporate identity should

be disregarded because he did not think of it as a separate

entity from himself.    While this may be the case, petitioner is

the one who elected the corporate form for I.D. Club when it was

initially created.    Petitioner received the benefits of the

election of the corporate status for I.D. Club.       Moreover, I.D.

Club was operating as a corporation when petitioner entered into

agreements on I.D. Club's behalf.    I.D. Club was created with a

real business purpose, and, in its initial operations, it

conducted legitimate business transactions.       I.D. Club was not a

sham corporation.    There is no reason why we should disregard the

corporate entity.    Accordingly, petitioner is not entitled to

deduct expenses of I.D. Club.    We sustain respondent's

determination.

     To reflect the foregoing,



                                              Decision will be entered

                                         for respondent in the amount

                                         of the reduced deficiency.
