Karen Ann Keegan - Page 6

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           and application of funds method.  As a result, respondent                                  
           determined that petitioner failed to report gross income in the                            
           amount of $4,578.  This amount was calculated as follows:                                  
           Gross wages1                         $8,707                                                
           Gross receipts (Schedule C)           8,010                                                
           1993 tax refund                               198                                          
           Total known sources of income                            $16,915                           
           Federal taxes withheld                                   1,668                             
           Schedule C expenses (as verified)                          480                             
           Personal living expenses--                                                                 
           Bureau of Labor Statistics3                            19,345                              
           Total expenses                                           (21,493)                          
           Unreported income                                          4,578                           
                 1  In addition to her Schedule C activities, petitioner                              
           worked for Office Depot during the taxable year 1994 and reported                          
           wages earned in the amount of $8,707.                                                      
                 2  On Schedule C of her 1994 return, petitioner claimed cost                         
           of goods sold in the amount of $7,583.  Respondent disallowed                              
           petitioner's claimed cost of goods sold, and, accordingly,                                 
           respondent's reconstruction of petitioner's income does not                                
           reflect cost of goods sold.                                                                
                 3  Respondent utilized the average annual expenditures for                           
           1994 for one person, U.S. Department of Labor, Bureau of Labor                             
           Statistics.  One component of these living expenses is the cost                            
           of shelter in the amount of $4,089.                                                        

                 We begin by noting that petitioner bears the burden of                               
           proving that respondent's determination is erroneous.  Rule                                
           142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).  Moreover,                           
           deductions are a matter of legislative grace, and petitioner                               
           bears the burden of proving that she is entitled to any                                    

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