John Joseph Montano - Page 5

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          income and claimed losses relating to his filament tape                     
          endeavors:                                                                  
                                                  Sch. C                              
                                        Sch. C    Cost of                             
                    Wage      Sch. C    Returns &   Goods Sold/  Sch. C               
          Year      Income   Gross Rec.  Allowances  Expenses1    Loss                
          1991      $38,468   $ 4,297   $37,683     - 0 -      ($33,386)              
          1992      37,192    12,162    29,478    $19,330        ( 36,646)            
          1993       38,204   6,417     45,243      6,031        ( 32,795)            
          1994      41,989    9,273     23,172     22,637        ( 36,536)            
          _______________                                                             
               1  For the 1992 and 1993 years this figure represents only             
          the amounts claimed as cost of goods sold.  No expenses were                
          claimed on the Schedules C attached to these returns.  The figure           
          for the 1994 tax year comprises $20,527 for cost of goods sold              
          and $2,110 in expenses.                                                     

               Petitioner testified that from time to time over a number of           
          years he attempted to dispose of his defective tape inventory.              
          He testified that "so what I went through this whole period of              
          time was trying to get somebody who would take some of it, any of           
          it or all of it".  But since the record is rather muddied, it is            
          not clear that petitioner actually ever sold any of the tape.               
               Petitioner does not attempt to explain how Schedule C                  
          returns and allowances could exceed Schedule C gross receipts,              
          particularly in each year over a 4-year period as reflected on              
          the above table.  Throughout 1993 and for 5 years before that,              
          petitioner was employed by the State of California as a payroll             









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