The Tax Court yesterday held that the taxpayer’s expenses incurred prior to the start of its horse boarding and training business were deductible under § 212 and did not have to be capitalized as start-up expenditures under § 195:

This Court construes the term “startup expenditure” to denote an expenditure that is capital rather than ordinary. This Court will not interpret § 195 [start-up expenditures] to override the deductibility of ordinary and necessary expenses petitioner incurred in an ongoing § 212 [expenditures for production of income] activity any more than it would do so for an ongoing § 162 [trade or business expenses] activity. …Once her § 212 activity has begun, the deduction of ordinary and necessary expenses paid or incurred in that activity is not precluded by § 195 regardless of whether that activity is subsequently transformed into a trade or business. This interpretation is consistent with § 195 and its legislative history.

  Toth v. Commissioner, 128 T.C. No. 1 (1/18/07).