The Contemporary Tax Journal, Volume 9

Tax Treatment Of Business Expenses: By Madhuri Lanka, CMA, MST Student, San Jose State University

Introduction

This article discusses a 2020 Tax Court case involving the issue of when an expense should be treated as a start-up expense, trade or business expense, or as an income producing activity expense. This classification is crucial because the tax treatment of deductions is different for each category and therefore, affects taxpayer’s calculation of taxable income and tax liability. It is important to observe whether the expenses incurred by a company were before the commencement of business or once it started carrying on business. The purpose of this paper is to discuss these types of expenses by analyzing a 2020 court case and Internal Revenue Code (IRC) sections 162 (trade or business expenses), section 195 (start-up expenditures) and section 212 (income producing activity expenses).

James Gordon Primus v. Commissioner, TC Summary Opinion 2020-2

James G. Primus, a New York accountant, bought a property consisting of 200 acres of maple trees in Quebec, Canada in September 2011. A significant number of the trees were mature and ready to produce maple syrup. Before collecting sap and producing syrup, James G. Primus thinned the maple bush and subsequently installed a pipeline to produce syrup from sap. The production and sale of maple syrup began in 2017.
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