Michael T. Chappell - Page 2




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               After concessions, the issues for decision are:                        
               1.   Whether petitioner’s proper filing status is head of              
          household for 1994 and 1995, as petitioner contends, or married             
          filing separately, as respondent contends.  We hold that it is              
          married filing separately.                                                  
               2.   Whether petitioner is entitled to the earned income               
          credit for 1995.  We hold that he is not.                                   
               3.   Whether petitioner had unreported income from his                 
          Schedule C business for 1994 and 1995.1  We hold that he had                
          unreported income of $42,972 for 1994 and $12,068 for 1995.                 
               4.   Whether petitioner may deduct miscellaneous expenses              
          related to his income tax return preparation business for 1994              
          and 1995.  We hold that he may to the extent discussed below.               
               5.   Whether petitioner is liable for the 10-percent                   
          addition to tax under section 72(t) for 1995 for an early                   
          distribution from a retirement account.  We hold that he is.                





               1  Respondent determined that petitioner had unreported                
          gross receipts for 1995 of $36,714, but now concedes that                   
          $23,845.64 is nontaxable or was reported in income by petitioner            
          in that year: $3,759.27 (taxable distribution from retirement               
          money market account included in taxable distribution reported by           
          petitioner); $15,297 (Aug. 3, 1995, workers’ compensation                   
          settlement payment); $180 of $1,363.42 deposit made on Oct. 3,              
          1995, and the $180 deposits made on Oct. 25, Nov. 17, and Nov.              
          28, 1995 (unemployment compensation included in income reported             
          by petitioner); $3,069.37 (nontaxable insurance recovery                    
          payment); and a $1,000 debit on May 8, 1995 (adjustment for                 
          returned check).                                                            




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