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and truck $928, legal and professional $1,900, office expense
$413, supplies $106, taxes and licenses $120, meals and
entertainment $346, equipment rental use $10,687, home office
$1,000, location travel $679, telephone $738, and union dues
$330.3
Petitioners’ return was prepared by Mr. Virgil Judd. The
determination to reflect the rental income and expenses on
Schedule C was made by Mr. Judd and petitioner jointly. Mr. Judd
stated that he was following the procedure that had been used in
previous years, and petitioner testified that 1993 was the only
year in which he had reported a loss from this activity.
In the notice of deficiency, respondent took alternative
positions with regard to petitioner’s Schedule C. Initially,
respondent determined that the Schedule C loss was not allowable
because it was incurred in the pursuit of a passive activity. In
the alternative, respondent takes the position that the $10,200,
reported as income on Schedule C, is merely reimbursement for
employee business expenses. Therefore, respondent contends that
the petitioner should have reported his employee business
expenses on Schedule A, reduced by the $10,200.4
3 On Schedule A, petitioner also deducted $3,491 as Form
2106 expenses (i.e. employee business expenses) and $1,244 as
union and professional dues.
4 Although respondent disallowed the entire loss claimed on
Schedule C, respondent also disallowed by a separate adjustment
(continued...)
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