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Respondent determined deficiencies in petitioners' Federal
income taxes as follows:
Year Deficiency
1992 $3,160
1993 4,240
In the notice of deficiency, respondent disallowed petitioners'
deductions for Schedule C expenses incurred in connection with
their Amway activity because they were not ordinary and necessary
expenses within the meaning of section 162. By answer,
respondent raised the issue that petitioners did not intend to
make a profit from their Schedule C activities for 1992 and 1993.
In the answer, respondent also requested the Court to find that
the deficiencies in tax for 1992 and 1993 were subject to the
accuracy-related penalties under section 6662. Respondent's
answer further asserted that petitioners were negligent and
intentionally disregarded the rules or regulations under the
Internal Revenue Code in filing their 1992 and 1993 Federal
income tax returns.
Respondent has conceded that petitioners did not have a
substantial understatement of income tax for 1992 and 1993 under
section 6662(d). As a result of the concession, the parties
limited the issue of penalties to those under section 6662(b)(1)
as follows:
Year Penalty
1992 $632
1993 848
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