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The percentage of gross profit reported in the 1994 Schedule
C to gross receipts reported in that schedule was 48.2 percent.
Included in the total expenses reported in petitioners’ 1994
Schedule C was automobile depreciation in the amount of $5,920
for a Cadillac and a Corvette (petitioners’ two automobiles).
Petitioners purchased both of those automobiles in 1994, the
Cadillac for $39,215 and the Corvette for $30,090. Attached to
petitioners’ 1994 joint return was Form 4562, Depreciation and
Amortization (Including Information on Listed Property) (Form
4562). In Part V, Listed Property--Automobiles (Part V), Section
B--Information on Use of Vehicles (Section B) of that form,
petitioners claimed total miles and total business miles of 3,500
with respect to the Cadillac and 3,200 with respect to the
Corvette. In Part V, Section A--Depreciation and Other Informa-
tion (Section A) of that form, petitioners indicated that they
had written evidence to support the claimed business use of
petitioners’ two automobiles.
Petitioners’ 1995 Federal Income Tax Return
Petitioners filed Form 1040, U.S. Individual Income Tax
Return for 1995 (petitioners’ 1995 joint return), which they
signed on April 3, 1996, “Without Prejudice”. In that return,
petitioners reported no wages or salaries and no tax due.
Petitioners’ 1995 joint return included Schedule C (1995
Schedule C). In the 1995 Schedule C, petitioners reported the
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