Henry Peter Novick and Carolyn S. Novick - Page 6

                                                - 6 -                                                  
            Net Profit       (13,368)   2,298    (13,023)     6,1501    (4,607)     4,995              
            Pre-Pals                                                                                   

            1   No explanation was given for the mathematical discrepancy.                             
                  Respondent's auditor reduced/disallowed the amounts claimed by                       
            petitioners primarily on the basis of failure to substantiate.  In                         
            some instances, the amount was reduced/disallowed on the basis that                        
            either the expenditures involved were personal in nature or                                
            petitioners failed to indicate the reason the expenditures were                            
            claimed.                                                                                   
            Miscellaneous Employee Business Expenses                                                   
                  For each of the years under consideration, petitioners claimed                       
            a deduction for miscellaneous employee business expenses on                                
            Schedule A of their tax returns. The following table shows the                             
            items of expenses claimed by petitioners, and the amounts allowed                          
            by respondent, for each of the years under consideration:                                  
            1989              1990               1991                                                  
            Reported  Allowed  Reported  Allowed  Reported  Allowed                                    
            Auto                 $ 7,020         0  $ 7,020         0  $ 7,020         0               
            Other asset--            119     $ 775    6,015   $ 1,632       43   $ 1,459               
            depreciation                                                                               
            Office expenses        8,252         0   18,922         0        0         0               
            Promotion              1,962         0        0         0        0         0               
            Storage and rent      18,400         0   18,340         0   18,340         0               
            Equipment              8,000         0        0         0        0         0               
            Conferences           13,764         0   10,349         0        0         0               
            Legal & accounting    16,610    19,916    2,665     4,080   39,281    27,980               
            Advertising pamphlet   6,750     6,750        0         0        0         0               
            Tax return prep.         689       639        0         0        0       685               
            Dues & pubs.               0         0    2,567         0      840         0               
            Maintenance                0         0    3,668         0    4,026     1,461               
            Education                  0         0        0         0    6,257         0               
            Leasehold impr.            0         0   12,500    19,616   12,500    19,287               
            Moving                     0         0        0         0    2,212         0               
            Total              81,566    28,080   82,046    25,328   90,519    50,872                  









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Last modified: May 25, 2011