John R. Hernandez - Page 5




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               Eric, petitioner’s grandson, moved in with petitioner in the           
          latter half of 1996.  Eric’s parents paid for all of Eric’s                 
          clothing.  Petitioner paid for Eric’s food and gave Eric                    
          presents.                                                                   
               Petitioner did not file a Federal income tax return for                
          1993.                                                                       
               Petitioner filed his 1995 return on June 29, 1998.                     
          Petitioner deducted $4,135 for investment interest and $6,129 for           
          other expenses on Schedule A, Itemized Deductions.  Petitioner              
          also reported on Schedule E, Supplemental Income and Loss, a loss           
          of $10,202 related to the house in the Bahamas.                             
               Petitioner filed his 1996 return claiming head-of-household            
          filing status on August 3, 1998.  Petitioner reported a loss of             
          $10,758 on Schedule E related to the house in the Bahamas.                  
               Petitioner timely filed his 1997 return.  Petitioner                   
          reported a loss of $10,333 on Schedule E related to the house in            
          the Bahamas.                                                                
               Respondent mailed a notice of deficiency to petitioner on              
          January 7, 2000, for tax years 1993, 1996, and 1997, and a                  
          separate notice on the same day for tax year 1995.  Respondent              
          determined that petitioner failed to report interest income from            
          the tax certificates of $49,805, $19,249, $14,656, and $6,603 for           
          1993, 1995, 1996, and 1997, respectively.  Respondent asserts               








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