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determination that the Form 1099-MISC compensation is includable
as page 1 gross income makes it incumbent on petitioners rather
than respondent to show their entitlement to the deduction items.
Petitioners’ approach to reporting the compensation and expenses
was wrong as a matter of law. Respondent’s determination
adequately described the basis for the income tax deficiencies
for purposes of section 7522.
It would have been helpful for respondent to expressly state
that the expenses were not allowed in the manner petitioners had
claimed them. Such a statement, however, would have no effect on
the amount of the income tax deficiencies that respondent
determined. Section 7522 does not require the Commissioner to
make suggestions, recommendations, or comments in a notice of
deficiency concerning taxpayers’ reporting positions that have no
effect on the deficiency that the Commissioner has determined.
Accordingly, we find that respondent was not required to
explicitly disallow the expenses. We also find that it is
irrelevant that the Form 2106 expenses were not placed in issue
in these cases. In effect, it is petitioners’ failure to
substantiate the expenses that results in their not being allowed
as deductions from AGI.
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Last modified: May 25, 2011