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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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