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penalty under section 6662(a) in the amount of $176. After a
concession by respondent, the issues for decision are:
(1) Whether a loss incurred by petitioner husband’s equipment
leasing activity is subject to the passive activities loss rules;
(2) in the alternative, whether unreimbursed expenditures for
that activity are employee business expenses deductible on
Schedule A; and (3) whether petitioners are liable for the
accuracy-related penalty.2
Petitioners resided in Silverado, California, at the time of
filing their petition.
Petitioner Michael D. Welch (petitioner) is a carpenter by
trade and is hired by movie production companies as a
construction coordinator. As a construction coordinator,
petitioner coordinates the construction of the sets required for
the movie. He hires other employees, arranges for purchase of
materials, and furnishes all the tools needed for the project.
In this connection, petitioner was required to purchase,
maintain, transport, and repair the tools as needed.
When petitioner is hired by the production company, he
enters into a “deal memorandum” (or deal memo). The deal memo
sets forth the terms of petitioner’s employment, including the
2 Respondent also contends that substantiation of some of
the expenses is at issue, which petitioners dispute. After
careful review of the record herein, we conclude and hold that no
substantiation issue was properly and timely raised.
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Last modified: May 25, 2011