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Respondent disallowed portions of the rental expenses
claimed for the years at issue. The notice of deficiency states
that:
It is determined that your Rents are $8,400
and $8,979 instead of $15,600 and $14,979 as
shown on your income tax returns for the tax
years 7-31-89 and 7-31-90, respectively.
Therefore your taxable income is increased in
the amounts of $7,200 and $6,000 for the tax
years ended July 31, 1989 and July 31, 1990,
respectively.
The record does not establish how much rent petitioner and No. 2
actually paid to Berry. See supra note 1. No. 2 deducted
$11,690 rental expense on its return for its taxable year ended
April 30, 1990, and this amount was not mentioned in the notice
of deficiency.3
In total, the notice of deficiency adjusted petitioner's
income as follows:
Item FYE 7-31-89 FYE 7-31-90
Gross Receipts $135,934 $200,909
Cost of Sales (39,581) (8,173)
Interest Income 1,336 2,525
Other Deductions (57,585) (126,540)
Rental Expense 7,200 6,000
Depreciation 6,513 6,513
The notice of deficiency increased petitioner's gross
receipts by $135,934 for its taxable year ended July 31, 1989,
3 Respondent's counsel insists that respondent actually
allowed petitioner rental expense deductions of $12,000 each
year, rather than the $8,400 and $8,979. See supra note 1.
Perhaps this matter can be clarified in the parties' Rule 155
computations.
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