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Operating Expenses (19,620) (14,990) (18,474)
(18,520) (10,083) (18,052)
Depreciation (11,298) (7,828) (6,006)
Income/(Loss) (29,818) (17,911) (24,058)
Although petitioners' gross income from their model railroad
activity increased to $8,577 in 1993, $16,142 in 1994, and
$14,575 in 1995, their operating expenses substantially
increased, so that their claimed losses were $23,255, $11,656,
and $14,443, respectively, for those years. Thus, the claimed
losses for 1990 through 1995 totaled $121,141, and petitioners
anticipated no net profit for their model railroad activity in
1996. Since 1993 petitioners' activity has been operated in the
name of Jim's House of Trains because they were informed that the
name Red Caboose is a trademark.
In the notice of deficiency respondent determined that
petitioners' model railroad activity was not engaged in for
profit and therefore disallowed the claimed loss deductions.
Claimed Nonbusiness Bad Debt Deduction
On January 30, 1990, petitioners lent Dale and Gloria
Christopher $6,000 to enable them to purchase a flower shop in
Monticello, Indiana. They had known the Christophers for 4 or 5
years prior to lending them the $6,000, and they had become
friends through church and other social activities. At that time
both couples lived in Battleground, Indiana, which is a small
community with less than 1,000 residents.
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