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Ms. Towles and Mr. Towles incurred legal expenses of $4,332,
expenses for repairs and supplies of $2,038.40, utility expenses
of $1,927.99, landscaping expenses of $1,719.41, power expenses
of $2,731.84, and hazard insurance expense of $2,432.09 and also
expended $6,968.31 on items, the nature of which is not disclosed
by the record.
Although Ms. Towles and Mr. Towles received rental income
from the Paradise Lane property for years prior to 1994, they did
not report any such income in their returns for those years. Ms.
Towles and Mr. Towles filed a joint tax return (Form 1040) for
1994 and claimed in Schedule A a deduction in the amount of
$14,980 for "investment realty repair and maintenance costs." In
1996, Ms. Towles and Mr. Towles filed an amended tax return (Form
1040X) for 1994 and claimed in Schedule E a rental loss of
$66,899.22. Respondent has not accepted that amended return.
Ms. Towles and Mr. Towles filed a joint tax return for 1995 and
claimed in Schedule E a rental loss of $32,795.94.
In the notice of deficiency issued to Ms. Towles and Mr.
Towles, respondent disallowed the deduction of $14,980 for
"investment, realty repair, and maintenance" costs that they
claimed in Schedule A of their 1994 return and the rental loss of
$32,7962 that they claimed in Schedule E of their 1995 return.
2This amount was rounded to the nearest dollar.
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