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In connection with Red Caboose, petitioners incurred, among
other operating expenses, table rental fees, postage expenses,
advertising expenses, utility expenses, banking fees, and travel
expenses. However, other than staying at less expensive hotels
and eating at less expensive restaurants while they were
attending shows, petitioners were unable to reduce their
operating expenses during the years in issue.
Petitioners enjoyed their model railroad activity and never
considered abandoning it although they regularly incurred losses.
While attending the model railroad shows, they occasionally
purchased items from other vendors, but they did not sell any
part of Mr. Lencke's personal model railroad collection in
connection with their model railroad activity.
On line 17 of their joint Federal income tax returns for
1990, 1991, and 1992, petitioners reported taxable pension income
in the amounts of $71,424, $35,524, and $33,714, respectively.
During 1990, 1991, and 1992, the gross receipts less cost of
goods sold from petitioners' model railroad activity were $440,
$2,108, and $1,128, respectively. Petitioners claimed losses
from the operation of their model railroad activity on the
Schedule C attached to their 1990, 1991, and 1992 Federal income
tax returns as follows:
1990 1991 1992
Gross Receipts $1,100 5,271 13,012
Cost of Goods Sold - (364) (12,590)
Gross Income 1,100 4,907 422
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