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For 1994, Frank reported a casualty loss of $1,298 and
Thomas reported a casualty loss of $2,187. In the notices of
deficiency, respondent determined that the casualty losses were
to be adjusted.
Southern Auto filed an amended return for 1994 restating the
gross receipts. Doran, who prepared the return, believed the
1994 gross receipts had been overstated. A statement attached to
the amended return claims that “as a result of a prior year IRS
examination; A/R of $20,180 were included in 1993 income.
Subsequently, the actual collection of the same $20,180 occurred
in 1994 and was erroneously included in line 1 of gross sales.”
We observe that both the original return and the amended return
were reported on the modified accrual basis. Based on amended
Schedules K-1 from Southern Auto, petitioners filed amended
returns and claims for refunds. Respondent rejected petitioners’
claims for refund.
Respondent determined that Thomas received $15,714 and
$15,040 of capital gain income as the result of distributions
from Southern Auto in excess of his basis during 1993 and 1994,
respectively.
Respondent also determined that in 1993 Thomas had $1,700 of
unreported Schedule C income based on a bank deposits analysis.
In 1993, Thomas was going through a divorce. He had six
different checking accounts, and his wife was “bouncing” checks,
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