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petition, they resided in Scottsdale, Arizona, at the time their
amended petition was filed. References to petitioner are to
Robert Lolli.
Background
For the taxable year 1990, respondent determined a
deficiency with respect to $24,500 of self-employment income that
petitioners failed to report on their 1990 Federal income tax
return. Respondent also determined that petitioners were liable
for an accuracy-related penalty under section 6662(a) in the
amount of $1,374.20 for negligence or disregard of rules or
regulations. Petitioners now claim for the first time that they
are entitled to "an offsetting business loss of $24,675" with
respect to the self-employment income they failed to report.
For the taxable year 1991, petitioners filed a Schedule C
for a business identified as "Horizon America", the principal
activity of which was "landscaping of new homes". Although
petitioners reported no gross receipts for Horizon America for
1991, they claimed a Schedule C loss that year in the amount of
$3,000 for bad debts from sales or services. Respondent
determined in her notice of deficiency for 1991 that petitioners
had failed to report a $184 taxable refund of taxes from the
State of Arizona and $369 of taxable interest. Respondent did
not, however, disallow the $3,000 bad debt deduction claimed by
petitioners on their 1991 Schedule C.
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