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indicated, all section references are to the Internal Revenue
Code in effect for the years in issue, and all Rule references
are to the Tax Court Rules of Practice and Procedure.
The issues for decision are: (1) Whether petitioners
properly reported amounts of rental income and deductions on
Schedule E of their 1994 and 1995 Federal income tax returns; (2)
whether petitioners are entitled to deduct S corporation losses
claimed on Schedule E of their 1994 and 1995 Federal income tax
returns; and (3) whether petitioners are liable for the accuracy-
related penalty pursuant to section 6662(a) for both years 1994
and 1995. Petitioners filed a timely petition with this Court.
At the time of filing the petition, petitioners resided in
Rockville, Maryland.
Background
Petitioner Kanhua Young was employed as an economist by the
U.S. Department of Commerce during the years in issue.
Petitioner Lihying Young (hereinafter petitioner) is also an
economist and the sole owner and president of OMNIX, an S
corporation. To the extent that OMNIX conducted any business
activity, such activity occurred at petitioners' home.
Petitioners timely filed their 1994 and 1995 Federal income
tax returns. Petitioners reported the following items of income
and expense on their Federal tax returns for the years in issue:
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