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this time, the Z-100 Lifeline's circulation was between 400 and
500 people.
In April 1992, PHI began shipping the SCSI board. By August
1992, PHI had sold 45 SCSI boards. In September 1993, PHI sold
the remainder of the 60 SCSI boards.
During 1992 and 1993, Mr. Flanagin also attempted to develop
software that allowed additional drivers to be used with the SCSI
board.
II. Other Background Information
Mr. Flanagin kept receipts for the various computer-related
expenses he incurred in conducting his software development
activity. He kept no other books and records of financial
information. Mr. Flanagin did not maintain a budget or financial
projections for his software development activity. He kept no
records of projects undertaken or hours worked on specific
projects. Mr. Flanagin never prepared any marketing or financial
plans or projections. At no time did Mr. Flanagin undertake any
study of what costs he might incur in attempting to develop
working software for the SCSI board.
Petitioners deducted expenses related to the software
development activity on Schedule C of their tax returns.
Petitioners reported the following income, receipts, and
expenses:
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