                  T.C. Summary Opinion 2008-29



                     UNITED STATES TAX COURT



               DORA MARGARET BENSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7781-06S.                Filed March 13, 2008.



     Dora Margaret Benson, pro se.

     Michael W. Lloyd, for respondent.



     ARMEN, Special Trial Judge:     This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect when the petition was filed.1    Pursuant to section

7463(b), the decision to be entered is not reviewable by any


     1
        Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
taxable years in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                 - 2 -

other court, and this opinion shall not be treated as precedent

for any other case.

     Respondent determined deficiencies in petitioner’s Federal

income taxes for 2002 and 2003 of $3,011 and $6,942,

respectively.   The central issue for decision is whether

petitioner’s activities were engaged in with a profit objective

as contemplated by section 183.2    For the reasons discussed

below, we hold for respondent.

                             Background

     Some of the facts have been stipulated, and they are so

found.   We incorporate by reference the parties’ extensive

stipulation of facts and accompanying exhibits.

     At the time the petition was filed, Dora Margaret Benson

resided in Colorado.

     In 2000 petitioner, a registered nurse, won $4 million in

the Colorado lottery.    She received $2,720,000, and to honor her

late mother, set up a memorial/Christian counseling center, the

Lila Osborne Memorial.   In addition to running the memorial,

petitioner continued her employment as a nurse.

     In 2000 petitioner acquired a building for the memorial.

Petitioner’s family helps her with the building without

compensation.   Her sister helps her run the building, and



     2
        To the extent not discussed herein, other issues are
computational in nature and flow from our decision in this case.
                               - 3 -

petitioner’s nephew helps her maintain the building and its

grounds.

     The building has nine offices, a waiting room, and a

bathroom.   Petitioner’s two brothers play videogames and use

their computers in one of the building’s offices.   Another office

is used as a prayer room by a volunteer missionary who provides

free counseling services.   Still another office houses a reading

room with books on religion and a computer on which visitors can

access and view six different versions of the Bible.   Petitioner

provides reflexology and mortgage broker services in other rooms

of the building; according to her testimony, she provides these

services to maintain income for the memorial.   Petitioner also

thought these activities would be good ways to provide for her

retirement.

     From 2000 through late 2002, petitioner’s activities

reported on Schedule C, Profit or Loss from Business, were

operated under the trade name of Lila Osborne Memorial

(Memorial).   The Schedules C for the Memorial, however, reflect

only a single activity, reflexology services.   Petitioner

testified that it was her intent that the Memorial be an umbrella

organization for all of her various activities.3


     3
        Although petitioner created Benson Exposition, Inc., an S
corporation, in late 2002 to be the umbrella organization for the
memorial and her various activities, she continued to report
income and expenses on Schedules C listing Lila Osborne Memorial.
                                                   (continued...)
                                    - 4 -

           In 2002 and 2003, petitioner’s Schedules C showed combined

expenses of $55,301 and gross receipts of $445.        Respondent

denied expense deductions beyond the gross receipts earned.

                                 Discussion

I.    The Burden of Proof

       Generally, the Commissioner’s determinations are presumed

correct, and the taxpayer bears the burden of proving those

determinations wrong.       Rule 142(a); INDOPCO, Inc. v Commissioner,

503 U.S. 79, 84 (1992); Welch v. Helvering, 290 U.S. 111, 115

(1933).       Under section 7491, the burden of proof may shift from

the taxpayer to the Commissioner if the taxpayer produces

credible evidence with respect to any factual issue relevant to

ascertaining the taxpayer’s tax liability.       Sec. 7491(a)(1).   In

this case there is no such shift because petitioner neither

alleged that section 7491 was applicable nor established that she

fully complied with the requirements of section 7491(a)(2).         The

burden of proof remains on petitioner.

II.    The Period of Limitations

       Petitioner expressed concern in her petition that the period


       3
     (...continued)
Benson Exposition, Inc. has not filed a corporate return since
its inception. Although there is some confusion as to whether
the activities in this case were conducted by Benson Exposition,
Inc., or by petitioner herself doing business as Lila Osborne
Memorial, the analysis remains the same. See sec. 1.183-1(f),
Income Tax Regs. (explaining that a taxpayer’s intent is
attributable to his or her wholly owned S corporation); see also
sec. 1.183-1(d)(1), Income Tax Regs.
                                - 5 -

of limitations on assessment had expired on her 2002 taxable

year.

       Generally, an income tax must be assessed within 3 years

after the applicable return is filed.    Sec. 6501(a).   In this

case, petitioner timely filed her 2002 Federal income tax return

on April 15, 2003.    April 15, 2006, was 3 years after that date.

As the notice of deficiency was sent on January 25, 2006, the

period of limitations on petitioner’s 2002 taxable year remained

open at the time the notice was sent.4

III.    Petitioner’s Lack of Profit Objective

       Section 183 specifically precludes deductions for activities

not engaged in for profit except to the extent of the gross

income derived from such activities.     Sec. 183(a) and (b)(2).

Given that petitioner had gross receipts of only $445 for the 2

years at issue, the remainder of her Schedule C expenses are only

deductible if we find that petitioner engaged in her activities

with the requisite profit objective.     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.




        4
        See also sec. 6501(h) as it relates to petitioner’s loss
carryforward, discussed infra, and sec. 6503(a)(1) regarding
suspending the running of the period of limitations upon the
issuance of a notice of deficiency and filing of a petition for
redetermination.
                                 - 6 -

     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 he or she

engaged in the activity with an actual and honest objective of

making a profit.     Hulter v. Commissioner, 91 T.C. 371, 392

(1988); Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd.

without opinion 702 F.2d 1205 (D.C. Cir. 1983); Hastings v.

Commissioner, T.C. Memo. 2002-310.       Profit means an economic

profit apart from any tax consequences.      See Surloff v.

Commissioner, 81 T.C. 210, 233 (1983).       Although a reasonable

expectation of a profit is not required, the taxpayer’s profit

objective must be actual and honest.       Dreicer v. Commissioner,

supra at 645; sec. 1.183-2(a), Income Tax Regs.      Whether a

taxpayer has an actual and honest profit objective is a question

of fact to be answered from all the relevant facts and

circumstances.     Hulter v. Commissioner, supra at 393; Hastings v.

Commissioner, supra; sec. 1.183-2(a), Income Tax Regs.        Greater

weight is given to objective facts than to a taxpayer’s mere

statement of intent.    Dreicer v. Commissioner, supra at 645; sec.

1.183-2(a), Income Tax Regs.    The taxpayer bears the burden of

establishing he or she had the requisite profit objective.       Rule

142(a); Keanini v. Commissioner, 94 T.C. 41, 46 (1990); Hastings

v. Commissioner, supra.
                                 - 7 -

     The regulations set forth a nonexhaustive list of factors

that may be considered in deciding whether a profit objective

exists.   These factors are:   (1) The manner in which the taxpayer

carries on the activity; (2) the expertise of the taxpayer or his

advisers; (3) the time and effort expended by the taxpayer in

carrying on the activity; (4) the expectation that the assets

used in the activity may appreciate in value; (5) the success of

the taxpayer in carrying on other similar or dissimilar

activities; (6) the taxpayer’s history of income or losses with

respect to the activity; (7) the amount of occasional profits, if

any, which are earned; (8) the financial status of the taxpayer;

and (9) any elements indicating personal pleasure or recreation.

See sec. 1.183-2(b), Income Tax Regs.

     No single factor, nor even the existence of a majority of

factors favoring or disfavoring the existence of a profit

objective, is controlling.     See id.    Rather, the relevant facts

and circumstances of the case are determinative.       See Golanty v.

Commissioner, 72 T.C. 411, 426 (1979), affd. without published

opinion 647 F.2d 170 (9th Cir. 1981).

     In this case, petitioner did not maintain accurate books and

records for any of her activities.       See sec. 1.183-2(b)(1),

Income Tax Regs.   In fact, it is unclear from the record what

percentage of her expenses should have been attributed to any

activity other than reflexology services.
                                - 8 -

     Petitioner also failed to develop a budget or a business

plan for any of her activities.   Although budgets and business

plans are not required, a lack of information upon which to make

educated business decisions tends to belie a taxpayer’s

contentions that an activity was pursued with the objective of

making a profit.    Dodge v. Commissioner, T.C. Memo. 1998-89,

affd. without published opinion 188 F.3d 507 (6th Cir. 1999).

     A taxpayer’s history of income or losses with respect to the

activity can also indicate whether a profit objective was

present.   Sec. 1.183-2(b)(6), Income Tax Regs.   Here, petitioner

reported only losses from the activities and never made a profit

from any of them.

     Using the same analytic framework set out in the

regulations, it is clear that the Lila Osborne Memorial building

was not held with a profit objective; petitioner did not charge

admission, nor did she charge her brothers rent for their use of

space in the building.   She had no tenants.   Only two of the

rooms were used for activities that might generate income.

Similarly, it is clear that the free reading room and free

spiritual counseling were offered to the public with no profit

objective.   Therefore, we focus the rest of our discussion on the

mortgage and reflexology services offered by petitioner.
                               - 9 -

     A.   Mortgage Services

     A taxpayer’s expertise, research, and study of an activity,

as well as his or her consultation with experts, may be

indicative of a profit objective.   Sec. 1.183-2(b)(2), Income Tax

Regs.   Despite taking a mortgage broker class, petitioner

demonstrated confusion surrounding the basic difference between

being a mortgage broker and a mortgage lender.   For example, she

testified at trial that the reason she had not done any business

as a mortgage broker was that she was concerned about her

obligations should the borrower go into default.   Petitioner did

make some personal loans to friends and relatives which were

reported on her Schedule B, Interest and Ordinary Dividends, but

these were not made as part of the activities at issue here.    She

also provided no indication that she was a licensed or registered

mortgage broker in the State of Colorado, or that she had

consulted others who were either successful mortgage brokers or

mortgage lenders for assistance and advice.

     Even if we were persuaded, arguendo, that petitioner

intended to engage in this activity with the necessary profit

objective, any expenses attributable to it would not be

deductible pursuant to section 162.

     Section 162(a) permits a deduction for the ordinary and

necessary expenses of carrying on a trade or business.    In order

for a taxpayer to deduct expenses under section 162(a), the
                              - 10 -

expenses must relate to a trade or business functioning at the

time the expenses were incurred.   See, e.g., Hardy v.

Commissioner, 93 T.C. 684, 687 (1989), affd. in part and remanded

in part per order (10th Cir., Oct. 29, 1990).   A taxpayer is not

carrying on a trade or business for section 162(a) purposes until

the business is functioning as a going concern and performing the

activities for which it was organized.   Richmond Television Corp.

v. United States, 345 F.2d 901, 907 (4th Cir. 1965).     Carrying on

a trade or business requires a showing of more than initial

research into or investigation of business potential.     Dean v.

Commissioner, 56 T.C. 895, 902 (1971); McKelvey v. Commissioner,

T.C. Memo. 2002-63, affd. 76 Fed. Appx. 806 (9th Cir. 2003).

Business operations must have actually commenced.   Dean v.

Commissioner, supra at 902; McKelvey v. Commissioner, supra.

     As noted above, petitioner has not brokered any mortgages.

Although she did take a class, any efforts petitioner made to

establish her mortgage services as a business and an activity

engaged in for profit are more appropriately described as startup

activities, or investigative activities, and not the activities

of a going concern such that any of her expenses in this arena

would be considered properly deductible under section 162.5




     5
        Startup expenditures must be capitalized and may be
amortized under sec. 195 once the activity begins.
                                   - 11 -

     B.     Reflexology Services

     Petitioner studied reflexology, and was well situated to

provide such services based on her many years as a trained and

skilled nursing professional.       See sec. 1.183-2(b)(2), Income Tax

Regs.     In addition, she did earn some income, however modest,

from the activity.     See sec. 1.183-2(b)(6), Income Tax Regs.    In

the 2 years at issue, her gross receipts totaled $445.      However,

petitioner’s losses have been substantial, totaling $55,301 in

that same period.     See id.

     The goal of an activity engaged in for profit “must be to

realize a profit on the entire operation, which presupposes not

only future net earnings but also sufficient net earnings to

recoup the losses which have meanwhile been sustained”.

Bessenyey v. Commissioner, 45 T.C. 261, 274 (1965), affd. 379

F.2d 252 (2d Cir. 1967); see also Nissley v. Commissioner, T.C.

Memo. 2000-178; sec. 1.183-2(b)(7), Income Tax Regs.      Petitioner

has not demonstrated that she has taken any steps to minimize

losses or increase earnings in order to recoup the sizable losses

she has sustained.     Accordingly, we are not persuaded that

petitioner has engaged in this activity with a profit objective

sufficient to satisfy section 183.

        Even if we were to have found that petitioner’s reflexology

activity was engaged in for profit, petitioner did not meet her

burden to provide sufficient evidence that the expenses reflected

on her Schedules C were ordinary and necessary for the operation
                               - 12 -

of that activity.    See sec. 162; Rule 142(a); INDOPCO Inc. v.

Commissioner, 503 U.S. at 84; Welch v. Helvering, 290 U.S. at

115.

IV.    The Loss Carryforward

       Petitioner’s 2002 Federal income tax return reflects a loss

carryforward of $16,192 from prior years.    The Schedule C

activities from those prior years giving rise to the loss are the

same ones at issue in this case.    Respondent denied petitioner’s

claimed loss deduction on the basis of sections 183 and 162.

       At the outset, we note that section 172 permits taxpayers to

carry net operating losses (NOLs) from one taxable year to

another, but generally requires that taxpayers first carry such

losses back 2 years.    Sec. 172(b)(1)(A) and (2).   Taxpayers may

elect only to carry forward their NOLs, but the statute requires

an express and irrevocable election.    Sec. 172(b)(3).   Petitioner

did not provide the Court with any information as to whether

such an election had been made.

       Further, as we find that petitioner’s activities were not

engaged in with the requisite profit objective to meet the

standard set out in section 183, and as petitioner has failed to

demonstrate that any expenses incurred were reasonable and

necessary to carrying on an active trade or business pursuant to

section 162, we hold for respondent on this issue.
                              - 13 -

                            Conclusion

     For the reasons discussed above, and on the basis of all of

the facts and circumstances present in this case, we hold that

petitioner was not engaged in any of the activities at issue with

the profit objective contemplated by section 183.     See also Rule

142(a); INDOPCO, Inc. v. Commissioner, supra at 84; Welch v.

Helvering, supra at 115.   Accordingly, we find for respondent.

     To reflect our disposition of the disputed issues,



                                         Decision will be entered

                                    for respondent.
