Arlan L. Rower and Sandra M. Howard - Page 4

                                        - 4 -                                         

          the car of his niece, Crystal Kahn (Ms. Kahn), for which he                 
          charged her.                                                                
               On February 19, 1988, Ms. Howard purchased a 1985 Ford                 
          Thunderbird automobile (Thunderbird) for $7,250.  During 1991,              
          petitioner purchased a 1985 Ferrari automobile (Ferrari) for                
          $61,000, which he sold for $45,000 on February 4, 1993.  Through-           
          out the period during which petitioner owned the Ferrari, he made           
          repairs on it and kept it in good working condition.                        
               Since sometime around 1990 through the time of the trial in            
          this case, John Grenville-Jones (Mr. Grenville-Jones), who has a            
          bachelor's degree in engineering and electronics and a master's             
          degree in electronic engineering, was petitioners' return pre-              
          parer.  Mr. Grenville-Jones prepared, inter alia, petitioners'              
          1991, 1992, and 1993 returns, as well as an amended return for              
          1993.                                                                       
               In Schedule C, Profit or Loss from Business (Schedule C), of           
          petitioners' 1992 return, which was the first Schedule C filed              
          for petitioner's automobile repair activity, petitioners claimed            
          that that activity constituted a business.  In that schedule,               
          petitioners reported gross receipts of $3,470, cost of goods sold           
          of $250, total expenses of $21,460, and a net loss of $18,240.              
          Included in the $21,460 of total expenses reported in petition-             
          ers' 1992 Schedule C was depreciation of $2,760 with respect to             
          petitioner's Ferrari.                                                       





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