Robert C. and Diana J. Watts - Page 3




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               Petitioner’s mother had a long illness in 1994 and 1995.               
          Petitioner frequently took her to doctor’s appointments and                 
          picked up her medications.  He also met with contractors who                
          repaired her house, and he sold her car.  She was hospitalized              
          several times in 1995, and petitioner stayed overnight with her             
          in the hospital once.  Petitioner’s mother died on March 28,                
          1996.  Petitioner was the executor of his mother’s estate.                  
               Petitioner’s sister, Lorna Gail (Gail), moved to San Antonio           
          in 1994 to help him care for their mother.  However, Gail was               
          seriously injured in a car accident on September 7, 1994, and               
          could not help petitioner care for their mother.                            
          B.   Petitioners’ 1994 and 1995 Income Tax Returns                          
               Petitioner kept detailed records of his business receipts              
          and deductions for 1994 and 1995, his business activities, and              
          how he spent his time away from the business in 1994 and 1995.              
          He had records that showed he had gross receipts from his                   
          business of $134,351.21 in 1994.  However, he did not rely on               
          these records when he prepared his 1994 return.                             
               Petitioners received a Form 1099-C which showed that they              
          had cancellation of indebtedness income of $18,067 for 1994.                
          They did not report this amount in income on their 1994 return.             
          Petitioners reported income from petitioner’s architectural                 
          services on a Schedule C that they attached to their 1994 return.           
          On it, petitioners reported gross receipts of $114,351.21 and a             






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