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he conducted under the name Hawthorne Enterprises, Mr. Hawthorne
deposited $1,000 every other month into a checking account in the
name of Hawthorne Enterprises.
Petitioners claimed in Schedules C of their returns for
1992, 1993, and 1994 expenses that Mr. Hawthorne incurred under
the name Hawthorne Enterprises totaling $13,337.59, $13,098.76,
and $9,981.94, respectively. Included in the expenses claimed in
Schedule C for 1992 were $716.32 for "Legal and professional
services", $2,775.04 for "Taxes and licenses", and $3,106.06 for
"Depreciation". Included in the expenses claimed in Schedules C
for 1993 and 1994 were $3,621.18 and $2,064.25, respectively, for
"Taxes and licenses" and $3,106.06 for "Depreciation".
In Schedules E of their 1992, 1993, and 1994 returns,
petitioners reported rental income and various expenses with
respect to certain real properties listed in those schedules,
including $549.32 claimed in Schedule E of their 1992 return for
"Legal and other professional fees" with respect to property
identified as "315 Princeton S E, Albq".
Notices of Deficiency
In the notice of deficiency (notice) issued to petitioners
for 1992, respondent, inter alia, disallowed all of the expenses
that petitioners claimed in Schedule C of their return for that
year because respondent determined that those expenses were not
incurred in the operation of a trade or business. However,
respondent allowed petitioners to include those disallowed
Schedule C expenses as Schedule A deductions subject to appropri-
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