A recent Tax Court summary opinion, Smith v.
Commissioner, T.C. Summ. Op. 2019-12, sheds light on when a
business becomes an active trade or business for purposes of the
deduction for "start-up expenditures" available under
Code Section 195.
Under Code Section 195, a taxpayer (a) is allowed a deduction
for start-up expenditures of up to $5,000 (phased out when
expenditures exceed $50,000) for the taxable year in which the
active trade or business begins, and (b) may deduct the remainder
of such start-up expenditures ratably over the 180-month period
beginning with the month in which the active trade or business
begins. "Start-up expenditures" generally include amounts
paid or incurred in connection with creating an active trade or
business (or investigating the creation or acquisition of an active
trade or business) that would be allowable as a deduction if paid
or incurred in connection with the operation of an existing active
trade or business.
