Benjamin B. and Dorina Micorescu - Page 7

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            representative as to whether one foster home would be better than                           
            another for the particular enrollee, based upon that enrollee's                             
            needs.  Once a decision was made identifying the foster home in                             
            which the enrollee wanted to live, ElderPlace negotiated the                                
            enrollee's payment rate with the foster home operator of the                                
            selected home.                                                                              
                  During each of the years 1992, 1993, and 1994, petitioners                            
            provided adult foster care to several persons in their home.  All                           
            of the residents had attained the age of 19.  Petitioners                                   
            received adult foster care payments for the individuals from                                
            various sources, from their residents or their representatives,                             
            in some cases from the State of Oregon and in other cases from                              
            ElderPlace.                                                                                 
                  On their Federal income tax returns for 1992 through 1994,                            
            petitioners reported certain income and deductions from "ADULT                              
            FOSTER CARE" on Schedule C.  Petitioners did not report as income                           
            amounts received from the State of Oregon or from ElderPlace.  On                           
            their return for 1994, petitioners reported exclusions of State                             
            and ElderPlace payments from income and made a separate                                     
            adjustment for expenses attributable to nontaxable income.                                  
                  Respondent examined petitioners' returns and determined that                          
            petitioners improperly excluded self-employment income received                             
            from ElderPlace in the amounts of $13,167, $22,750, and $32,366                             
            for the years 1992, 1993, and 1994, respectively, and are                                   





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