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1950's and were rented until 1988 or 1989.
Petitioners began to rehabilitate the cabins in the fall of
1994. Charlton spent time in 1994 working on the cabins and
other aspects of the Charlton Pointe property. Petitioners
incurred expenses for travel to Charlton Pointe and expenses to
rehabilitate the cabins. However, petitioners rented no cabins
at Charlton Pointe in 1994. Charlton began renting the cabins in
1998.
D. Petitioners’ Income Tax Returns
Charlton used tax return preparation software to prepare
returns for petitioners for 5 years, including 1994.
Petitioners filed a joint income tax return for 1994. On
it, they reported profits and losses on Schedules C, Profit or
Loss From Business, for Medi-Task and the cabins. Charlton used
the gross revenue amounts from the lists Hawthorne prepared to
prepare the return. He did not review the bank statements. He
also used the lists that Hawthorne prepared to report Medi-Task’s
expenses. He decided how to report the expenses on part II of
Schedule C for Medi-Task; e.g., as advertising, legal and
professional services, travel and meals, utilities, wages, and
other expenses.
Petitioners reported that the Medi-Task income was divided
equally between themselves for self-employment tax purposes.
Petitioners reported that Charlton had $62,135 in wages for
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