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each son, petitioners prepared a Form 1099-MISC, Statement for
Recipients of Miscellaneous Income, with respect to each of the
above amounts for both taxable years. In preparing the Forms
1099-MISC for each son, petitioners derived the amount presented
on the Forms 1099-MISC from data maintained by the recipient son.
All records maintained by the four sons were discarded, either
after receiving cash payment or after the son provided petitioner
Bui with the figures used in preparing the Forms 1099-MISC.
Each of petitioners' four sons filed Federal income tax
returns for taxable years 1988 and 1989, reporting the amounts
identified above. For both the 1988 and 1989 taxable years, each
son had a net tax due and owing upon completion of his return.
Petitioner Bui paid the entire tax due for both taxable years
1988 and 1989 for each of her sons, excluding Tri Minh Pham.
Citing the lack of substantiation, respondent disallowed
petitioners' claimed Schedule C deductions for the cost of labor
attributable to payments petitioners made to their sons in
taxable years 1988 and 1989.
On their Schedule C for taxable year 1988, petitioners also
claimed an equipment rental expense deduction in the amount of
$7,200. This expense is attributable to rental payments for six
sewing machines that petitioners used in the operation of their
enterprise. Petitioners produced a photocopy of a lease
representing their agreement with the lessor of the machines.
This photocopy states the following:
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