L. Ben Smith & Carol Smith - Page 7

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          (2001 joint return).5  Thereafter, they filed their 1999 joint              
          return and their 2001 joint return.6  In the 1999 joint return,             
          petitioners reported wage income of $92,276 and claimed an                  
          exclusion from gross income of $79,781 ($79,781 exclusion of 1999           
          wages).  In the 2001 joint return, petitioners reported wage                
          income of $99,980 and claimed an exclusion from gross income of             
          $99,980 ($99,980 exclusion of 2001 wages).  On page 1, line 21 of           
          the 2001 joint return, petitioners included the following nota-             
          tion with respect to the $99,980 exclusion of 2001 wages:  “CODE            
          SEC 931 DEDUCT-SEE ATTACHED”.  Petitioners attached to the 2001             
          joint return a document entitled “Federal Supplemental Informa-             
          tion” (petitioners’ attachment to their 2001 joint return).  That           
          document stated:  “TAXPAYER WORKED ON JOHNSTON ISLAND ATOLL                 
          DURING TAX YEAR AND SUBSEQUENT TO TITLE 26, VOL. 10, PART 1                 
          (SECTIONS 1.908 TO 1.1000), 26CFR 1.931-1 (REVISION 4-1-97),                
          TAXPAYER IS ENTITLED TO EXCLUDE EARNINGS FROM REPORTABLE INCOME.”           
          (Reproduced literally.)                                                     
               Respondent issued to petitioners a notice of deficiency                
          (notice) with respect to their taxable years 1999 and 2001.  In             
          that notice, respondent determined, inter alia, to disallow                 

               5On Feb. 26, 2000, and Feb. 27, 2002, respectively, Leland             
          Rubesh signed the 1999 joint return and the 2001 joint return as            
          return preparer.                                                            
               6The record does not disclose the respective dates on which            
          petitioners filed their 1999 joint return and their 2001 joint              
          return.                                                                     





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