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Petitioner made payments as necessary to be released from
personal liability under the settlement agreement, but the
payments fell short of discharging Pacer’s total liabilities. In
the summer of 1990, NAC seized the manufacturing equipment.
Petitioners made delinquent filing of their Federal income
tax returns for taxable years 1988 and 1989 on February 15, 1991.
Their Federal income tax returns for taxable years 1990 and 1991
were filed on October 21, 1991, and October 19, 1992,
respectively. Petitioners filed Schedules C, Profit or Loss from
Business, for businesses described as “equipment rental” for
taxable years 1988, 1989, and 1990, and as “metal fabrication”
for 1991. On these Schedules C, petitioners reported no income
but claimed deductions in the following amounts:
1988 1989 1990 1991
Depreciation $25,591 $51,151 $51,151 $31,942
Interest 15,278 -– -– -–
Freight 1,320 –- -– –-
Repairs 670 –- 5,897 –-
Utilities/phone 2,000 -– -– -–
Respondent disallowed these claimed deductions on grounds
that petitioners had not established that they were engaged in
the trade or business of equipment rental or metal fabrication,
or that they had any basis in any assets relating to such
activities.
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