- 2 -
respectively. In addition, respondent determined accuracy-
related penalties under section 6662(a)2 of $630.80, $776.20, and
$1,344.60 for taxable years 1995, 1996, and 1997, respectively.
After concessions,3 the issues for decision are: (1)
Whether petitioners may exclude from gross income the amounts
petitioner John Favero (Mr. Favero) received as compensation in
1996 and 1997 working as a merchant seaman for various U.S.
corporations and/or businesses as either combat zone compensation
or foreign earned income; (2) whether petitioners are entitled to
deduct expenses on Schedule C, Profit or Loss From Business, of
$12,087 in 1995; (3) whether petitioners are entitled to deduct
expenses on Schedule E, Supplemental Income and Loss, beyond
those allowed by respondent in 1995 and 1996; (4) whether
2 Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the years in issue.
3 Petitioners concede that they are not entitled to a
capital loss in 1995, they are not entitled to deductions for
moving expenses in 1995 or 1996, and they are not entitled to the
mortgage interest expense deductions of $2,000 and $1,800 claimed
as itemized deductions in 1995 and 1996, respectively. Mr.
Favero concedes that he is not entitled to expenses, other than a
mortgage interest expense of $1,459, claimed as deductions on
Schedule E of his 1997 return; he is not entitled to the mortgage
interest expense deduction of $1,800 claimed as an itemized
deduction in 1997; and he is not entitled to the real estate tax
deduction of $500 claimed as an itemized deduction on his 1997
return. Petitioners concede that Mr. Favero received
unemployment compensation of $3,003 in 1995 and that Mrs. Favero
received Social Security payments of $5,247 in 1995 and $5,890 in
1996. Other adjustments in the notices of deficiency are
computational adjustments to petitioners’ itemized deductions
based on respondent’s other adjustments. These computational
adjustments are not contested and therefore not before the Court.
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