Karen Ann Keegan - Page 5

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                  Windi, in addition to working for K & A, also worked at an                          
            IGA grocery store from January 1995 to November 1995, earning                             
            between $120 and $130 per week.  Windi used her earnings for                              
            personal expenses.                                                                        
                  Petitioner received assistance from Federal and State                               
            agencies during the taxable years in issue.  The assistance                               
            included food stamps for the entire taxable year 1994 and for 3                           
            to 4 months during the taxable year 1995.  Petitioner received                            
            monthly food stamp benefits in the amount of $212 ($2,544 per                             
            year).  Petitioner, Mr. Gorges, and Windi were also covered under                         
            Medicaid during the taxable years in issue.                                               
                  Petitioner claimed Mr. Gorges and Windi as dependents on her                        
            returns for the years 1994 and 1995, and claimed head-of-                                 
            household filing status for each of those taxable years.                                  
            3.  Respondent's Adjustments for the Taxable Years 1994 and 1995                          
            and Reconstruction of Petitioner's Income for the Taxable                                 
            Year 1994                                                                                 
                  Upon examination, respondent disallowed the cost of goods                           
            sold claimed by petitioner on Schedules C of her 1994 and 1995                            
            returns.  Respondent also disallowed the claimed dependency                               
            exemptions for each of the taxable years in issue and determined                          
            that petitioner was not entitled to claim head-of-household                               
            filing status.                                                                            
                  In addition to these adjustments, respondent reconstructed                          
            petitioner's income for the taxable year 1994 by using the source                         

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