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Before engaging in the chartering activity, petitioners did
not set up a business plan. Additionally, petitioners did not
analyze the possibility of making a profit. Petitioners tried,
but were unable, to obtain insurance which covered commercial use
of the boats. Petitioners did not keep books and records of
their chartering business.
Petitioners would go out on the boats about once a week,
generally on weekends. Occasionally, petitioners would use the
boats for recreational purposes. Petitioners had four to six
paying customers in 1992 and had none in 1993 and 1994.
Petitioners primarily promoted their chartering services
primarily through announcements made at the church they attended
and flyers posted at other churches, barber shops, and bait
shops. In addition, petitioners distributed business cards and
attached them to the flyers.
For 1992, 1993, and 1994, petitioners deducted $14,646,
$12,100, and $6,948, respectively, for expenses related to their
chartering activity. In 1992, petitioners reported $1,200 in
income from the activity. Petitioners reported no income from
the chartering activity in 1993 or 1994.
Charitable Contributions
Petitioners regularly attended several churches in the bay
area of California, including the New Hope Baptist Church in
Oakland, California. During the years in issue, petitioners made
financial contributions to these churches and to other charitable
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Last modified: May 25, 2011