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E. Petitioners’ 1994 Tax Return
1. Preparation of Petitioners’ Return
Before 1994, petitioners sometimes used tax preparers and
certified public accountants to prepare their income tax returns.
Petitioners’ daughter-in-law, Susan Barmes, helped them prepare
their 1994 return. Susan Barmes had worked for petitioners since
1990 and had been married to petitioners’ son Greg since 1994.
She had previously worked two or three tax seasons preparing tax
returns for H&R Block. In helping to prepare petitioners’ 1994
return, Susan Barmes used a tax return preparation computer
program, IRS Publication 334, Tax Guide for Small Business for
1994, and IRS Publication 534, Depreciation.
2. Petitioners’ 1994 Schedule C for Barbara’s Gift Shop
Petitioners reported gross receipts of $5,445,178 and a net
profit of $859,655 from Barbara’s Gift Shop on a Schedule C
attached to their 1994 income tax return.
Petitioners deducted the following amounts of depreciation
for the two automobiles they placed in service in 1994:
Date placed Claimed Claimed
in service Vehicle mileage depreciation
8/1/94 1994 Cadillac 3,500 $2,960
6/18/94 1994 Corvette 3,200 2,960
Petitioners claimed they used each vehicle 100 percent for
business. The mileage claimed by petitioners for each vehicle
was taken from odometer readings at the end of 1994. Petitioners
did not maintain a log or other contemporaneous written records
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