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In addition, in the corrected return petitioners decreased
their personal exemptions by one, resulting in an increase in
petitioners' taxable income in the amount of $2,300. Petitioners
also submitted a "corrected" Schedule C for Mr. Margolis'
business, conceding a $4,413 reduction in Schedule C expenses.
As part of the claimed expenses in the corrected return, Mr.
Margolis also claimed an $890 mortgage interest expense
deduction.5 Respondent allowed this $890 deduction for Mr.
Margolis' business.
Subsequently, respondent conceded that Mrs. Margolis had
received only $14,180 of unreported self-employment income from
her textile design business, as opposed to $14,755 as determined
in the deficiency notice, and that petitioners were entitled to
$1,535 in Schedule C expense deductions for Mrs. Margolis'
business. Respondent did not allow a deduction for the $890
mortgage interest expense for Mrs. Margolis' business or for the
$4,502 home office expense.
At trial, respondent asserted an increase to petitioners'
unreported income resulting from two different adjustments to
respondent's bank deposits analysis. First, respondent's counsel
determined that petitioners deposited only $1,500 of Mrs.
Margolis' self-employment income, as opposed to $4,470 as
4(...continued)
to a mortgage expense.
5 It appears that petitioners similarly intended to claim a
deduction for an interest expense as opposed to a mortgage
expense.
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