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burden of proof because the deficiency notice was allegedly
arbitrary and excessive, and whether the testimony of
respondent's witness, Alan Hull, should be rejected as
unreliable. The two substantive issues remaining for decision
are (1) whether petitioners are entitled to Schedule C business
expense deductions in excess of the amounts allowed by
respondent, and (2) whether petitioners are liable for the
section 6662(a) accuracy-related penalty for negligence or
disregard of rules or regulations.
For convenience we are combining our findings of fact and
opinion in this case.
Some of the facts have been stipulated and are so found.
The stipulation of facts and the exhibits attached thereto are
incorporated herein by this reference.
Petitioners William W. Halle IV, and Janice C. Halle resided
in Cheyenne, Wyoming, at the time their petition was filed. They
timely filed their joint Federal income tax return for 1990.
Prior to and during 1990, petitioner operated a locksmith
and burglar alarm business (the locksmith business) as a Schedule
C business. He used the accrual method of accounting in that
business. His personal residence and locksmith business were
located in New Jersey until late December 1990. Petitioner used
50 percent of the New Jersey personal residence for the locksmith
business. He also leased additional space in a separate location
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