Source: https://www.currentfederaltaxdevelopments.com/blog/2015/4/18/business-had-not-yet-commenced-therefore-no-deductions-were-allowed
Timestamp: 2019-04-21 12:35:58+00:00

Document:
The taxpayer in the case of Tarighi v. Commissioner, TC Summary Opinion 2015-28 the taxpayer ran afoul of, among other things, the problem of the start-up expense provisions of IRC §195.
Under IRC §195(a) such expenses are not currently deductible, but can only be deducted as provided for by IRC §195(b). By default under Reg. §1.195-1(b) a taxpayer is presumed to elect to deduct start-up expenses under the amortization/expensing rules of §195(b) unless the taxpayer attaches an affirmative election to the return filed for the year the business begins to capitalize the expenses, something few taxpayers are likely going to wish to elect.
The key issue in all of these cases is that no deduction is triggered until the trade or business begins.
Mr. Tarighi is a civil engineer who had spent his career as an employee with 25 years of experience as a highway designer and construction engineer. Like many such individuals Mr. Tarighi got the itch to start his own business, but to do so while still employed.
In 2008 he had business cards printed, designed stationery and set up a Web site for the business he wanted to start. He also purchased various items of office equipment and set up an office in the basement of his home.
That same year Mr. Tarighi’s salary was dramatically reduced, likely due to the severe downturn in the construction industry as the financial crises began. Mr. Tarighi decided to increase his efforts directed at getting this new business underway. He had many contacts in the industry and during 2009, 2010 and 2011 (the years before the Court) he visited construction sites after work to distribute his business cards and speak with managers and other performing work on the various projects. He used these trips to stay up on what was happening in the industry.
However, Mr. Tarighi did not bid on any contract during the period in question nor did he have any clients for his business.
As was explained above, if Mr. Tarighi had not yet become engaged in the active conduct of a trade or business none of the above expenses would be deductible until the year in which he did begin that business.
· Whether the taxpayer’s activity has actually commenced.
On the basis of the evidence presented, we conclude that Mr. Tarighi was not engaged in a trade or business for purposes of section 162(a) during the years at issue. CES did not have any income or clients and did not bid on any jobs during the years at issue. Though Mr. Tarighi frequently visited construction sites to promote CES, if he had the intention of earning a profit, he would have pursued contracts and bid on jobs. Mr. Tarighi’s actions exemplify steps taken to set up a business, not those of a business that has commenced and is presently operating as a going concern.
Many advisers will run into these clients who may claim to have a business they plan to move into from their job “once it’s up and running.” Quite often the client ends up, like Mr. Tarighi, getting stuck in very preliminary steps, not wanting to accept that, most likely, the only way to actually get the business running is to leave the full time job so that the client will actually be able to get customers for the new business.
The adviser must remind such individuals that while the expenses they are incurring would be deductible for a business, until such time as they actually get the business running the items will simply be held for potential future deduction.

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