-8-
1989 1990 1991 1992
Gross receipts $336,545 $450,252 $476,785 $234,677
Allowed business 280,733 264,280 271,515 103,262
expenses
Unreported net 55,812 185,972 205,270 131,415
business income
Allowed expenses 83.4% 58.7% 56.9% 44.0%
as a percentage
of gross receipts
Respondent's Reconstruction of Petitioner's Income for 1993-94
Respondent did not use the "specific items" method to
reconstruct petitioner's income for 1993 and 1994. Instead,
respondent determined petitioner's income by reference to Bureau
of Labor Statistics average cost-of-living survey information.
Using this information, respondent determined that petitioner had
a cost of living--and therefore must have had unreported net
business income--of $34,533 and $35,638, in 1993 and 1994
respectively. After allowing petitioner one personal exemption,
the standard deduction, and a deduction for self-employment tax,
respondent determined that petitioner's taxable income was
$26,043 and $26,870 in 1993 and 1994, respectively.
OPINION
I. Is Petitioner Entitled to Additional Deductions for 1989-92?
Prior to trial, the parties stipulated that petitioner's
gross receipts for 1989-92 were equal to the amounts determined
by respondent. The parties also stipulated that petitioner's
unreported net business income for 1989-92 was equal to the
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