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so he covered checks by moving money from one account to another.
He claimed the $1,700 could have been a result of the transfers,
but he did not identify any such transfer.
Respondent also disallowed $3,546 of expenses claimed on
Thomas' Schedule C in 1993. Thomas testified that he incurred
these expenses on behalf of Southern Auto. He occasionally would
use his own money to have cars washed and to buy gas and parts
for cars. Thomas did not ask to be reimbursed because he knew
that Southern Auto had cash-flow problems.
Based on the additional Schedule C income of $1,700 and the
disallowance of $3,546 of Schedule C expenses, respondent also
determined that Thomas’ self-employment tax should be increased
by $741 and that he was entitled to an additional self-employment
tax deduction of $371.
Section 61 defines gross income as all income from whatever
source derived. With respect to an S corporation, section
1366(a) provides that in determining a shareholder's tax
liability, there shall be taken into account the shareholder's
pro rata share of the corporation's items of income and
deduction. A shareholder's pro rata share of any item for any
taxable year is the sum of the amounts determined by assigning an
equal portion of such item to each day of the taxable year, and
then by dividing that portion pro rata among the shares
outstanding on such day. Sec. 1377(a)(1).
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