John H. and Mary E. Douglas - Page 6

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          principal business activity.6  Although petitioner's Schedule C             
          does not reflect any income for 1992, his Schedule E reflects               
          rental income and expenses from petitioner's properties.7  The              
          1992 return also reflects that petitioners each received wages              
          from employment unrelated to the Schedule C or rental activity              
          and that petitioners' wages from such employment totaled                    
               Petitioner's 1993 Schedule C reflects "Real Estate--                   
          Managing Residential Property" as his principal business                    
          activity.  Again, the Schedule C does not reflect any income.               
          The Schedule E, however, reflects rental income and expenses                
          attributable to petitioner's properties.  For 1993, petitioners             
          reported wages in the total amount of $34,821.17.                           
               Respondent determined that petitioners are not entitled to             
          the claimed business bad debt deduction in the amount of $31,060            
          on Schedule C of their 1992 return.  Respondent further argues              
          that if petitioners are entitled to a bad debt deduction with               
          respect to the amount described above, then the loss should be              
          characterized as a nonbusiness bad debt rather than a business              
          bad debt.  Respondent also determined that the $2,500 in legal              

               6  Petitioner's Form 1040 for 1989 does not include a                  
          Schedule C.                                                                 
               7   Petitioner also reported rental income and expenses from           
          his properties on Schedule E for 1987, 1988, and 1989.                      
          Petitioner did not list the Fort Washington property on Schedule            
          E for either the tax years in issue or previous tax years.                  

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