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term "petitioner" to refer solely to Richard D. Hudson.
Betty L. Hudson is a party mainly because she filed joint Federal
income tax returns with petitioner during the subject years.
Background
The stipulated facts and exhibits are incorporated herein by
this reference. Petitioner and Mrs. Hudson are husband and wife.
They resided in Bloomington, Indiana, when they petitioned the
Court. They filed 1987 and 1988 Forms 1040, U.S. Individual
Income Tax Returns, using the status of "Married filing joint
return".
During the subject years, petitioner operated a sole
proprietorship that sold diamonds and other gemstones at
wholesale and retail prices. Petitioner started this business in
1965, and he has always used the cash receipts and disbursements
method (cash method). Petitioner did not maintain inventories
for purposes of computing his cost of goods sold, but he
currently expensed all costs that he paid to purchase the
diamonds and other gemstones. Following concessions by the
parties, petitioner's gross receipts, cost of goods sold, and
gross profit percentage for the subject years were:
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