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on October 1, 1993. The Schedule C reported the following:
Gross receipts $71,509
Cost of goods sold 58,430
Gross income 13,079
Total expenses 31,850
Net loss (18,771)
Mr. Stephen Paquette (Mr. Paquette) prepared the Velinsky's
1990 joint Federal income tax return. In preparing this return,
Mr. Paquette relied primarily upon information furnished to him
by Mr. Velinsky. However, Mr. Paquette did examine some of the
supporting receipts for the claimed Schedule C expenses to
satisfy himself that the claimed expenses were not personal but
had a business purpose.
Mr. Velinsky represented to Mr. Paquette that he had an
office in his rental home that was used exclusively for business
purposes (the home office). Mr. Velinsky and petitioner claimed
a $4,800 deduction on the Schedule C for rent and other business
expenses relating to the home office.
Mr. Velinsky and petitioner also claimed a deduction for
$2,471 in utility expenses with respect to the home office and
for specific use of the telephone. The home office was not used
exclusively for business. Petitioner and Mr. Velinsky claimed a
Schedule C deduction for $6,798 for meals and entertainment of
clients during 1990.
Mr. Velinsky told Mr. Paquette that he used his automobile
to travel from his home office to meet with his clients, and that
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